Hi Ananymous,

very good answer by Adam.

I would add that there are a couple of rules of thumb that show up in nature and in business that are good to keep in mind. There are a million exceptions to any of these (well, except the rule of 70, because that's just math). But they're good first sanity checks...

• First and foremost there's the famous Pareto 80/20 rule
• Rule of 70: To calculate the time it takes for something to double, divide 70 by the rate of growth (i.e. at 5% interest your investment would double roughly withing 14 years). Works only for growth rates up to roundabout 10%
• The 1% rule: If you're asked to calculate something of high exclusivity (luxury products, golf, ...) just make it a thing of the top 1%.
• Economic profits: As a very rough rule, no market or business, (with the exception of very strong network effect businesses like Facebook or Google) will sustainably deliver profits (EBIT) above let's say 10-15% and EBITDA of 25-40%. I mean, these figures are very rough ballparks, but if it were not so, others would enter the market and drive down profits. I know that there are probably a million examples of businesses that beat my theory, but of you assume a profit margin ov 10% you are rarely laughed out of the room.
• Inverse relationships beween investment and EBITDA: A business that has very high upfront investments (think chip manufacturing, telecom networks, sofware development, ...) will have relatively high EBITDA ratios (35, 40, even 60%). Businesses with low investments but high operational expenditures (eny service business, most general manufacturing) will have MUCH lower EBITDA. And by and large, EBIT rates wil be more or less similar.
• Span of control: Most managers can't manage more than 7-8 direct reports. So in most organisations, the layers of management are more or less 6-8 times larger with every step. So if you have 5 CXOs, you might have 30-40 VPs, about 200 department heads, maybe 1500 team leads and 10000 worker bees. Very rough estimates, but helpful as a rule of thumb. So if you see an organisation with 100k employees, you can roughly calculate the number of management layers.