It assumes a lot of costs are fixed, and do not scale with income. Software is weird like that.
Double the 500k R / 250k P company without more expenses, and you now have 1 M R / 750k P. Double the 1M R / 100k P and you now have 2 M R / 1.1 M P.
Especially if a firm can come in and do a round of layoffs (Replace support with outsourced, fire marketing, replace devs with outsourced).. it would be pretty easy to get the margin really really high for a few years, which is all they may be looking for.
Comments
It assumes a lot of costs are fixed, and do not scale with income. Software is weird like that.
Double the 500k R / 250k P company without more expenses, and you now have 1 M R / 750k P. Double the 1M R / 100k P and you now have 2 M R / 1.1 M P.
Especially if a firm can come in and do a round of layoffs (Replace support with outsourced, fire marketing, replace devs with outsourced).. it would be pretty easy to get the margin really really high for a few years, which is all they may be looking for.
Also maybe, some forms of financing are based on revenue, and just care that there is enough profit to cover the interest e.g. https://en.m.wikipedia.org/wiki/Revenue-based_financing