GM Before the Bankruptcy

The Type I to Type III Transition and the Maximum Point on the Profits-Revenues Graph Generalization of Plancks Radiation Law
Whats good for the country is good for General Motors and whats good for General Motors is good for the country
Charles Wilson, President and CEO of GM and nominee for Secretary for Defense in 1953, during his confirmation hearings. The first part was promptly forgotten and the next day headlines only blared the second part. Wilson was still confirmed and served as Secretary of Defense (1953-1957) during the Eisenhower administration. 8.00

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A maximum point was observed in the profits-revenues graph for General Motors, in the years preceding its bankruptcy filing. GM was operating in the falling portion of this curve for a prolonged period. Ford Motor Company is also currently operating past its maximum point in the falling portion f the curve.
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Table of Contents
No. 1. 2. 3. 4. 5. 6. 7. 8. 9. Topic Summary The Maximum point on the profits-revenues graph Simplified Linear Analysis: Type I to Type III transition The significance of the nonzero intercept c From linear to nonlinear laws Plancks derivation of the average value of any property Appendix I: Details of Average value of any property U. Appendix II: GMs Profits-Revenues data (1991-2008) Appendix III: Bibliograhy list of Related Articles Page No. 3 5 8 14 15 17 21 21 23

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 1. Summary
Some auto industry analysts believe that the new GM may still be headed for a bankruptcy. The profits-revenues data for General Motors, prior to its once unthinkable bankruptcy in June 2009, is analyzed to gain insights. It is shown that: a) A simple linear law y = hx + c = h(x x0), where x is revenues and y is profits, describes the data with different values of the constants h and c for different time periods. b) GM was operating in the desirable Type I mode (profits and profit margins increasing with increasing revenues, h > 0, c < 0) from 1991 to about 1999. In this mode, the profits-revenue graph has a positive slope. c) Following this, GM entered a prolonged period where it was operating in the detrimental Type III mode, from about 1997-2008. (There is a small overlapping period between the two modes of operation.) In the Type III mode, profits and profit margins decrease even as revenues increase. The profits-revenues graph now has a negative slope (h < 0 and c > 0). The transition from Type I to Type III mode thus implies the appearance of a maximum point on the profits-revenues graph, indeed observed circa 1996-1997, just as the transition to Type III mode occurred. Other studies by the present author show (references provided here) that a similar maximum point and a transition to Type III behavior is observed with several companies which are either struggling and/or in a crisis mode. The most notable example is Air Tran, which was forced into a merger with Southwest Airlines in March 2011. The other example is Best Buy, which is now entering into a crisis mode with its founder and former CEO willing to buy-back all the shares and make it a private company. Yahoo, Kroger, Verizon Communications, and Zynga, which became a public company only in December 2011, are some other examples. Perhaps, the most notable of all, especially for those who are interested in the auto industry is the appearance of a maximum point in the profits-revenues graph for Ford Motor Company (circa 1997-199). Ford is now operating past its maximum point, in the region where the profits-revenues graph has a negative slope. This explains the large annual fluctuations in profits reported by Ford.
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The linear law can be shown to be a consequence of the classical breakeven model for the profitability of a company. The operation in the desirable Type I mode is thus easily rationalized with the cut-off revenue x0 = - c/h being related to the fixed costs. The Type II (h > 0, c > 0, observed with Microsoft, with Type I to Type II back to Type I transition) and Type III modes (observed with many companies, notably Air Tran, and the still struggling Zynga) are not readily rationalized since the constants h and c are only allowed the positive and negative values corresponding to the Type I behavior. Interestingly, however, the appearance of a maximum point, the implied nonlinearity, and the Type II and Type III modes (which are small local line segments on a more general nonlinear curve) can be rationalized by appealing to Max Plancks well-known derivation of the average energy U for a system composed of a very large number of entities N which exist in various microstates. Mathematically speaking, instead of energy, we simply associate money, or any other property of interest with the symbol U in Plancks derivation. This permits a broad generalization of Plancks radiation law to many problems outside physics, including the appearance of the maximum point on the profits-revenues graph of General Motors, a once proud and mighty company, the worlds largest company, and one that still engages (rather passionate, both good and bad) public attention.

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 2. The Maximum Point on the Profits-Revenues Graph

As is well known, General Motors, once the worlds largest corporation, was (in)famously forced into a bankruptcy in June 2009 and was bailed out, amidst a lot of controversy (which continues), by the US government with a multi-billion dollar federal loan (about $50 billion). As of this writing, on August 24, 2012, the government still has a financial stake in GM. The government owns about 500 million shares (~ 26% to 32% of total, depending on source cited) but the GM share prices have fallen to about $21.19 (3.59 PM, EDT on August 24, 2012) making it very difficult for the government to recover the bailout money, in the near future. Some sources even say that, as of April 2010, GM has, technically speaking, settled all of its cash loan with the government and repaid it ahead of schedule. Nonetheless, the 500 million shares owned by the government is a RED herring. Some auto industry analysts think that GM may be headed for bankruptcy once again (see http://patriotpost.us/opinion/14504 ). Thus, the main purpose here is to analyze the GM profits-revenues data, for the years 191-2008, to gain some insights into the evolution of the bankruptcy scenario. The financial data for this period has been compiled in Table A1 (see Appendices at the end of this article), from various annual reports, and is available for review. The simplest approach is a graphical representation of this data. The profits-revenues graph clearly reveals a maximum point, see Figure 1. Profits increased with increasing revenues, went through the maximum (circa 1995-1997) and then started decreasing even as revenues continued to increase. And, so it is, that the once proud and mighty company was forced into bankruptcy. This is the short version of the story of GMs bankruptcy!

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Figure 1: Maximum point on the profits-revenues graph for General Motors before its bankruptcy. The data for the period 1991-2008 is plotted here and was compiled from various annual reports. Slight differences in revenues and profits between various annual reports were NOT overlooked and used preparing this graph, see Table A1. This same data is replotted in Figure 2 using an expanded scale for profits. The data for the three years with the highest losses has been deleted purposely from this graph to highlight the maximum point. We see a rising trend at the low revenues and then a falling trend at higher revenues. A smooth, nonlinear, curve with a maximum point can be conceived to describe the observed pattern. We will consider this point in 4. A simpler approach, and one that actually has wider implications, is the linear analysis describe in the next section, 2.

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8.00

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Figure 2a: Expanded view of the profits-revenues graph to reveal the maximum point during the period 1991-2008. Two symmetric parabolas, with the general equation (y b) = k(x a)2 with the vertex located at the point (a, b) can be fitted to this data, as illustrated in Figure 2b. Once the co-ordinates of the vertex are fixed, the numerical value of the constant k can be fixed by considering any (x, y) pair through which the parabola passes.

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8.00

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Figure 2b: Two parabolas with the general equation (y b) = k (x a)2are fitted to the data to highlight the appearance of a maximum point on the profits-revenues graph. The outer parabola A has its vertex at (166, 6.8) and k = -0.00572 using the (x, y) pair for 1993. The inner (dashed) parabola B has its vertex at (164, 5) and k = -0.0063 using (x, y) pair for 2002 (higher revenue).

3. Simplified linear Analysis: Type I to Type III transition

The fundamental implications of the linear law y = hx + c, relating revenues x and profits y, have already been discussed in detail in the two companion articles dealing with the profits-revenues data for the new GM, see links given below. The following is a brief summary of the main points from these two articles. The profits-revenues data for the new GM, for five consecutive quarters, starting with 1Q2010 to 1Q2011, published May 9, 2011.
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 The evolution of the profits-revenues data for the 12 quarters (3Q2009 to 2Q20012) since GM emerged from bankruptcy in July 2009, published August 22, 2012. In the first of these two analyses, it was shown that, with the exception of the 4Q2010 data, the other four points lie on a nearly PERFECT straight line. The best-fit line through the four points, see Figure 4 in Ref.[1] below, has the equation y = 0.435x 12.929 = 0.435 (x 29.69) with the linear regression coefficient r2 = 0.9798.
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Type III line y = -0.192x + 39.96 y/x = - 0.192 + (39.96/x)

Type I line y = 0.356x - 48.27 y/x = 0.356 - (48.27/x)

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Figure 3: Two straight lines with a positive and a negative slope are added here which can be thought as line segments that represent the rising and falling portions of a smooth curve with a maximum point. In the second, more recent analysis, it was shown that a) the annual data for the partial year 2009 and the two full years 2010 and 2011, lie on a nearly perfect straight line, with the equation y = 0.129x 11.87 = 0.129 (x 91.7)
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and b) all of the quarterly data fall between two parallels with the slope h = 0.435 determined in the earlier analysis. The linear law y = hx + c can be shown to be a consequence of the classical breakeven analysis for the profitability of a company. The constant h and c in the linear law can be related to the fundamental constants (a, b, p) in the breakeven model, where revenues R = pN and total cost C = a + bN, N being the number of units sold, a being the fixed cost, b the unit variable cost and p the unit price. Further details may be found in Refs.[1] and [2] below. 1. http://www.scribd.com/doc/103607023/Why-Can-t-General-Motors-bemore-like-Microsoft-The-new-GM-may-just-be 2. http://www.scribd.com/doc/103600274/The-New-GM-A-Brief-Analysisof-the-Profits-Revenues-Data-through-1Q2011 In agreement with these findings, the straight line with the equation y = hx + c = h(x x0) = 0.356x 48.27 = 0.356 (x 135.6), joining the data for 1991 and 1995, represents the rising trend, see Figure 3. Such a straight line, with a positive slope and a negative intercept (h > 0, c < 0), has been called a Type I line, see Ref. [1] above. Both profits, y, and the profit margins, y/x = h + (c/x) = 0.356 48.27/x, increase as revenues x increase when a company is operating along such a Type I line. The straight line with the equation y = -0.193x + 39.96 = - 0.193(x - 207.33), connecting the data for 1997 and 2006, represents the falling trend. Such a straight line with a negative slope and a positive intercept (h < 0, c > 0) is called a Type III line. Both profits y and profit margins y/x = -0.193 + (39.96/x) decrease with increasing revenues x when the company is operating along such a Type III line. How can a company continue to exist if it is operating past its maximum point on the profits-revenues diagram, as revealed here, with profits decreasing even as revenues increase over many years? The negative slope of the graph in Figure 3 means that both profits and profit margins were decreasing for several years, in the years preceding the bankruptcy. This detrimental Type III trend, which was observed for more than a decade, from 1997-2008, prior to the bankruptcy filing in June 2009, is further highlighted by the graph prepared in Figures 4 which considers only the Type III data. The data is
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compiled separately in Table 1. Slightly different values of the profits and revenues were obtained for the same year from different annual reports. Hence more than one (x, y) pair is available, in some case, for a single year. It is also of interest to note that three essentially PERFECT parallels can be superimposed on to the graph in Figure 4. This is illustrated in Figure 5. It should be noted that the slopes of these parallels were determined by considering various (x, y) pairs revealed in the data. Lines B and C actually have slopes that differ only in the third decimal place.
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Figure 4: The profits-revenues data for GM, prior to the bankruptcy, for the period 1997-2008, obtained from various annual reports. Slightly different values of profits and revenues were obtained, in some cases, from the different annual reports. All of this data is plotted here. Without regard to chronology, the data reveals a general trend of decreasing profits with increasing revenues. The outermost Line A, y = -0.23x + 47.62 = -0.23 (x 207.3) joins the 1997 and 2006 data.
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 The middle Line B, y = -0.217x + 44.14 = -0.22 (x 203.45) joins the 1997 (lower revenue) and 2003 data. The innermost Line C, y = -0.216x + 41.99 = -0.22 (x 194.57) joins the 2000 and 2002 data.
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Figure 5: During the decade prior to the bankruptcy (1997-2008), profits and profit margins were decreasing with increasing revenues, year-after- year, as revealed by the negative slope of the Type III lines. Profits and revenues were essentially fluctuating between these three parallels. The equations for these Type III lines were deduced from the actual (x, y) pairs. If we consider any two points (x1, y1) and (x2, y2) on the graph, the slope of the line joining the two points is h = (y2 y1)/(x2 x1) and the intercept c = y1 hx1 = y2 hx2. The movement along these parallels means that as revenues increased by a fixed amount x, the profits always decreased by the same fixed amount y = hx since the slope h is negative. With fluctuations in the values of the constant c (intercept made on the y-axis, which is now positive), the company was jumping back and
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forth between these parallels for more than a decade, with profit margins decreases year and year and apparently varying erratically. Unfortunately, the unmistakable Type III pattern revealed here, of decreasing profits with increasing revenues, as well as the movement along nearly PERFECT parallels was NOT recognized. Financial analyses rarely employ profits-revenues diagrams which are central to the discussion here. One is content with tabulation of the profits and revenues data and the profit margin values. Only percent changes between the current year and the year ago, or the current and the same quarter, one year ago are considered. The rate of change of profits with increasing revenues h = y/x, is rarely computed in any financial analysis.
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Figure 6: The profits-revenues data for the decade, 1991-1999, reveals a Type I trend with profits increasing with increasing revenues. The data for 1992, which included a special one-time charge, resulting in the highest ever loss reported by a corporation until that time, is not included here. Two Type I lines, which are roughly parallel to each other, can be superimposed on to this data. The dashed Line A, y = 0.264x 34 = 0.264 (x 128.9), joins the 1993 and 1995 (lower
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revenue) data. Line B, y = 0.248x 34.97 = 0.248(x 141.1) joins the 1991 and 1995 (highest revenue) data. The Type I in Figure 3 has a higher slope h = 0.356 and was used to envelope all the data and illustrate the appearance of a maximum point on the graph. As we see here, it is the ratio, h = y/x, not the profit margin y/x, that determines the direction in which a company is moving. The linear law implies that the ratio y/x = m = h + (c/x) and m = h if and only if the intercept c = 0. This slope h is similar to the marginal tax rate and may be called the marginal rate of increase of profits (MRP). The slope h of the graph changes from a positive value (when revenues were lower, between 1991 and 1999, see Figure 6 where this period is highlighted separately) to at low negative value. This change from a positive to a negative value also implies a maximum point. One is dealing with an underlying nonlinear pattern, but it is easier to see the linear trend and the changes in the slopes as evident from the linear analysis.

4. The significance of the nonzero intercept c

The significance of the nonzero intercept c made by the Type I line (h > 0, c < 0), y = hx + c = h(x x0) has already been discussed in Ref. [1] above. As revenues increase, we expect profits to increase. However, not all of the revenues will appear as profits for two reasons. The total cost C = a + bN where N is the number of units sold, a is the fixed cost and the b the unit variable cost. Hence, a minimum revenue, equal to the fixed cost, must be exceeded before profits will appear. Even after the revenues exceed the fixed cost, the unit variable cost means that only the difference (pN bN) will appear as profits. Here p is the unit price. For a real world company like GM, this means that revenues must exceed the minimum, or cut-off revenue x0 = - c/h = ap/(p - b), since, as shown in Ref.[1], the constant c = - a and the slope h = 1 (b/p) in the simple breakeven model (for a company making and selling a single product). Thus, the complex interaction of these three fundamental costs (a, b, p) determines the breakeven revenue x0. Once this is exceeded profits begin to increase at the fixed rate h. The movement between the parallels that we see there implies small (and sometimes large) fluctuations in the various costs of the operation, from one
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quarter to the other, or from one year to the other. When the company is operating in the Type I mode, both profits and profit margins continue to increase with increasing revenues. However, the situation changes when it transitions to the Type III mode, as we see here for GM, in the decade prior to the bankruptcy. The fluctuations between the parallels can still be interpreted as reflecting a fluctuation in the costs of the operation, although it would seem that the simple breakeven model for profitability does not permit the appearance of a negative slope and profits decreasing with increasing revenues. With some reflection it is obvious that the simple breakeven model consider only one single product. We can interpret a, b, and p in the breakeven model as representing the average values for many different products for a real world company. Will the same linear law hold? How do we explain the appearance of the maximum point on the profits-revenues graph?

5. From Linear to Nonlinear laws

Instead of straight line segments, a smooth nonlinear curve with a maximum point can also be envisioned. The simplest mathematical equation which describes such a nonlinear behavior is the power-exponential equation y = mxne-ax + c, with the power-law term xn multiplying the exponential term e-ax. The power law implies a rising curve with y increasing indefinitely as x increases. From elementary calculus, we know that the derivative of the power law function, y = xn, dy/dx = nxn-1 = n(y/x). This is the slope of the power law curve which will either keep on increasing (if n > 1) or keep on decreasing (if n < 1), indefinitely, as x increases. There is no maximum or minimum. The exponential term, on the other hand, implies a falling curve (a > 0) for large values of x. The derivative of just the exponential function y = e-ax, dy/dx = - ae-ax. Hence, the product curve, which must account for these opposing tendencies, reveals a maximum point. For the power-exponential law, dy/dx = (n ax)(y c)/x for the case of nonzero c. A maximum point will be observed when n = ax, or x = xm = n/a. For x < n/a the curve is rising and for x > n/a, the curve is falling. The position of the maximum x m depends on both n and a. For a fixed value of n, or a fixed value of a, one can
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imagine a family of curves all revealing a maximum point. Indeed, such a family of curves can be envisioned to explain the scatter in the profits-revenues data that we see in Figures 1 to 3. A maximum point is also observed on the graph of the radiation spectrum for a heated body, see Figures 7 and 8. As also discussed in Ref. [1], the appearance of such a maximum point could not be explained by classical physics and led to the development of quantum theory at the turn of the 20th century.

http://hyperphysics.phy-astr.gsu.edu/hbase/imgmod/bbrc2b.gif Figure 7: A family of curves with a maximum point is observed in the study of radiation spectrum of a heated body. Each curve corresponds to radiation emitted at a fixed temperature T. The family of curves is described by the mathematical equation derived by Planck can be generalized as y = mxn [ e-ax/(1 + be-ax) ] + c. For the special case of b = 0 and c = 0, this reduces to the simpler equation y = mxne-ax. The formula for the derivative is dy/dx = (n ax)(y/x). A maximum point appears at n = ax, or x = n/a. This simplified version of Plancks law was also used by Einstein, in 1905, to eventually arrive at the simple linear law y = hx + c = h (x x0) to explain the photoelectric effect. This is relevant to our discussion of the appearance of a maximum point on the profits-revenues graph for General Motors. Firstly, the simple breakeven model leads us to the linear law, y = hx + c = h(x x0) with only positive values of h and
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x0 = -c/h which means a Type I straight line. The Type II and Type III straight lines are not permitted. The, how do we explain the maximum point? Secondly, GM is not an isolated case of a huge company, that went into bankruptcy, exhibiting a maximum point. A similar maximum point is also observed when we study the profits-revenues data for other companies. Some examples are Ford Motor Company, Air Tran (which was recently forced to enter into a merger with Southwest Airlines, after 16 years of operation), Best Buy (the founder and former CEO has offered to buy back all the shares and make it a private company once again), other struggling companies like Kroger, Verizon Communications and also the newer companies like Zynga (IPO in December 2011 but no profits reported on an annual basis) and Groupon (both Type I and Type III behavior has been observed, with a transition back to Type I mode in the last three quarters). Thus, the preponderance of the empirical evidence thus seems to link the appearance of a maximum point, especially the transition from Type I to Type III behavior, as the fundamental reason for GMs bankruptcy. It is a no-brainer really that no company can continue to operate while reporting decreasing profits, year after year, even as revenues continue to increase. Both profits and profit margins will therefore decrease year after year, an unsustainable path for any company. This is the reason for GMs bankruptcy.

6. Average value of any property for a complex system

Why does a maximum point appear and what has this got to do with quantum physics and Plancks radiation law? Very simply, Plancks analysis yields the exponential term, [e-ax/(1 e-ax)], which is sometimes called the cut-off factor. This was needed in physics to produce the maximum point on the radiation curve. Without this cut-off factor, the radiation intensity increases indefinitely with increasing frequency, following the classical Rayleigh-Jean power-law, which can be written as y = mxn, see also Figure 7 and the discussion provided in the links associated with it. The factor [e-ax/(1 e-ax)], or more generally [e-ax/(1 +be-ax)], arises from Plancks expression for the average
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energy U of N entities called oscillators, with N being a very large number. The total energy of these N oscillators can be determined by summation. UN = NU = P = N0U0 + N1U1 + N2U2 + where, N = N0 + N1 + N2 + .. (1) (2)

Courtesy: Review article, Planck, Quantum and Historians, by Clayton A. Gearhart. http://employees.csbsju.edu/cgearhart/ Planck/PQH.pdf

Fig. 2. Graph of black-body radiation for a range of temperatures. Wavelength is plotted on the horizontal axis, and radiation intensity on the vertical. The data are those of Lummer and Pringsheim from November 1899, which were the first to suggest a possible deviation from Wiens law. It was not at first clear whether the deviations between the solid curve representing the data, and the dashed curve calculated from Wiens law, might represent systematic errors in the experiment. Note that at these temperatures, the measurements lie well into the infrared region of the spectrum (that is, all wavelengths are longer than the 0.7, that marks the upper limit of visible light). Source: O. Lummer and E. Pringsheim, 1. Die Vertheilung der Energie im Spectrum des schwarzen Ko rpers und des blanken Platins; 2. Temperaturbestimmung fester gluhender Korper, Verhandlungen der Deutschen Physikalischen Gesellschaft 1 (1899), 215235, on p. 217.

Figure 8: Experimental results on black body radiation showing a) the maximum point and b) deviations from Wiens law, which was a simple power-exponential
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law, y = mxne-ax. Wien proposed this law based on empirical observations, without any rigorous theoretical justification. Wien received the Nobel Prize in 1911 for his discovery of the Laws of Thermal Radiation. The appearance of the maximum point could not explained based on the classical theory (the RayleighJean law, which was a simple power law y = mxn). Planck developed his quantum theory to explain the maximum point, armed with the knowledge that experiments showed deviation from Wiens law. Thus, he arrives at y = mxn[e-ax/(1 e-ax)]. http://www.nobelprize.org/nobel_prizes/physics/laureates/1911/wien-lecture.html If we replace energy with money in these equations, the relevance of Plancks analysis is immediately obvious. For example, exactly the same equations would be used, with energy being replaced by money, if we wish to determine the averageprice of N stocks, for example the 30 stocks of the Dow, or the 500 stocks of the S&P index. The same equations would be used for other problems such as the determination of the average fuel economy (the CAF) of a fleet of vehicles. Or, the average unemployment rate which involves surveys where the whole population is divided into various cells or sampling units in different geographical locations. Likewise, the weekly average price of gasoline (and diesel) is determined by the US government by sampling approximately 15, 000 retail gasoline outlets distributed over different regions and population centers. All these averages involve a computation similar to that embodied in equations 1 and 2. Interestingly, Plancks analysis provides a simple mathematical formula that has not been widely appreciated. With this reinterpretation of equations 1 and 2, the extension of Plancks ideas outside physics, where one must determine the average value of some property, let us continue to call this U, is immediately obvious. Complex systems, where one must determine the average by considering thousands, or tens of thousands, or even millions of entities N also give rise to a property called entropy which is a measure of the amount of disorder, or chaos, or randomness in the system.
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To solve the problem of determining the average value of U, Planck proposes the following idea (originally also used by Boltzmann in 1877, and acknowledged freely by Planck). Let the total energy UN = NU = P where P is a very large integer and is some unknown elementary unit of energy. The product P is the same as the product NU. These are just two different ways of expressing the same idea, just as 108 = 27 4 = 36 3. Also, there are many different ways, lets call it , in which the same total energy can be distributed between the N oscillators. We have to distribute the P total units among the N total entities. This gives rise to many possible distributions (or microstates of the system all of which are associated with the same macrostate) and the property called the entropy SN = NS for this system. Here SN is the total entropy and S the average entropy. In his revolutionary December 1900 paper, Planck actually uses the formula for given by Boltzmann, in a 1877 paper (full 23 years later). The entropy is given by: SN = k ln = k ln [ (N + P 1)! /(N 1)! P!] k ln [(N + P)N+P /NNPP] (3) Here we are dealing with factorials of very large numbers n! = n(n 1)3 2 1 and so on. Thus, 4! = 4 321 = 24. For large integers, the factorials can be replaced by exponents. Note that the relationship between entropy and is logarithmic (ln denotes natural logarithm) since we are dealing with large number of entities N (or P). Since NU = P, it follows that equation 3 relates the entropy S to U. After some straightforward mathematical manipulations and after determining the derivative dS/dU (the significance of the derivative is discussed in Ref.[1] and will not be repeated here), Planck arrives at the expression for the average value U, which can be rewritten as follows. U = [ e-ax /(1 e-ax) ] Or, U/ = P/N = [ e-ax /(1 e-ax) ] (4) (5)

Again, replacing energy with money, we arrive at the average revenues, or profits, associated with a real world company. This is the simplest explanation for
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using the following generalized statement of Plancks radiation law to study financial problems (such as the GM bankruptcy problem) or many other complex problems outside physics. The most generalized statement of Plancks law is: y = mxn [e-ax /(1 + be-ax) ] + c and, where dy/dx = [ (y c)/x ] [ n ax - axg(g - 1) ] g = 1/(1 + be-ax) note g = 1 for b = 0 (6) (7) (8)

A simple proof which generalizes the result in equation 4 above is provided in Appendix I.

7. Appendix I
Going beyond physics Average value of any property U
The expression for the average value U of any property of interest, not necessarily energy that Planck was interested in, can be derived as follows. This is described by the Nobel laureate Richard Feynman in his famous Lectures on Physics and also by Longair, in his book Theoretical concepts in physics, see references given below. R. P. Feynman, R. B. Leighton, and M. Sands, The Feynman Lectures on Physics, Addison Wesley, Reading, MA, Sixth Printing, see volume which deals with Quantum Mechanics, 39-1 to 41-10. M. S. Longair, Theoretical concepts in physics, Cambridge University Press (1984).

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The total entities N are assumed to be distributed as follows in the various states denoted as N0, N1, N2, etc. Let N1 = N0t, N2 = N0t2 and so on to very large values of the subscript numbers. Here t is a parameter which will be fixed later. The total number of entities is therefore given by the sum, N = N0 + N0t + N0t2 + . = N0 (1 + t + t2 + ..) = N0 / (1 t) (A1) Here we have used a well-known series expansion which can be found in most texts on mathematics (example, Wolfram). Next, we determine the sum UN after invoking the following assumption. Let U0 = 0, U1 = , U2 = 2, U3 = 3 and so on. Hence, UN = (N0t) + (N0t2) 2 + . (N0t) [1 + 2t + 3t2 + ] = (N0) [ t/(1- t)2 ] (A2) Again, we used another well-known series expansion to arrive at this sum. Both the series used here may be found in the treatment given by Longair (click here); the formulae given here as 14.21, 14.22, and 14.23 are the ones of interest. Note that we have not yet specified the meaning of t or the elementary unit . The average value U = UN/N is now readily determined. U = (N0) [ t/(1- t)2 ] / [ N0 / (1 t) ] = [ t /(1 - t) ] (A3)

Notice that the unknown N0 disappears when we determine the average value U. The average value is determined entirely by , the elementary unit also used by Planck until the very very last step. If we set the parameter t = e-ax which introduces the exponential factor, we arrive at the average value U as: U = [ t / (1 t) ] = [ e-ax / (1 e-ax) ] (A4)

This completes the proof for the cut-off factor containing the exponential function. In the final step, Planck simply introduces the expression for U into the power-law and sets = hx (where x is taken as frequency f in physics, here we have any general x of interest).

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The power-law is now written as y = Mxn-1U and substituting for U leads us to the desired result y = Mxn-1U = Mxn-1 (hx) [ e-ax/(1 e-ax) ] = mxn [ e-ax /(1 e-ax) ]. To generalize this further we replace the denominator of the cut-off factor (which yields the maximum point) with (1 + be-ax) where we now allow for b = 0, b = +1, and b = -1, to describe various rules associated with the microstates of the N entities. In physics, these are called Maxwell-Boltzmann statistics, Fermi-Dirac statistics, and Bose-Einstein statistics. Finally, as applied to problems beyond physics, perhaps the parameter t in the expression for U could be replaced with mathematical functions other than the exponential. This would lead other nonlinear curves (such as the parabola for GMs profits-revenues data), not necessarily the Planck curve, with or without the maximum point.

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 8. Appendix II
Profits-Revenues Data for General Motors Corporation
Year Revenues, x Profits, y $, billions $, billions Type I Behavior from 1991-1999
123.109 132.242 138.219 154.951 168.829 160.254 154.954 164.013 158.281 178.174 172.58 155.445 176.558 -4.453 -23.498 2.466 4.901 6.881 6.881 6.881 4.963 4.963 6.698 6.698 2.956 6.002

Profit Margin, % 100(y/x)

-3.62 -17.77 1.78 3.16 4.08 4.29 4.44 3.03 3.14 3.76 3.88 1.90 3.40

1991 1992 1993 1994 1995 1995 1995 1996 1996 1997 1997 1998 1999

Type III Behavior from 1997-2008

2.41 2000 184.632 4.452 173.943 4.452 2.56 2000 177.26 0.601 0.34 2001 0.36 2001 169.051 0.601 186.763 1.736 0.93 2002 177.867 1.736 0.98 2002 185.837 3.822 2.06 2003 1.45 2004 193.517 2.805 194.655 -0.0184 -0.01 2005 0.00 2006 207.349 -0.0035 192.196 2.701 1.41 2004 -5.42 2005 192.143 -10.417 204.467 -1.978 -0.97 2006 -21.52 2007 179.984 -38.732 148.979 -30.86 -20.71 2008 http://www.getfilings.com/comp/k0000040730.html For 1995, different revenues in the 1997 and 1995 reports. For 1995, 1996, 1997, different revenues in the 1999, 1997 and 1995 reports. Bolded values confirmed in 2000 report for prior years. http://www.getfilings.com/comp/k0000040730.html From 1993 to 2004 all 10-K filings at this link. Revenues reported in subsequent reports were lower in several cases with no change in profits. http://online.wsj.com/public/resources/documents/filing-GM10090305.pdf 2004 to 2008 from online.wsj.com
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9. Appendix III: Bibliography

Related Internet articles posted at this website Since the Facebook IPO on May 18, 2012
The first article listed below discusses a little known mathematical property of a straight line. Figures 1 to 3 in this article provide the philosophical basis for considering the significance of a nonzero intercept c as it applies to many problems in the real world. We make observations (x and y values of interest to us) to deduce y/x, usually called rates, ratios, or percentages. 1. http://www.scribd.com/doc/102000311/A-Little-Known-MathematicalProperty-of-a-Straight-Line-Strange-but-true-there-is-one Published August 4, 2012. Financial data (Profits-Revenues) analysis and Generalization of Plancks law beyond physics. 2. http://www.scribd.com/doc/95906902/Simple-Mathematical-Laws-GovernCorporate-Financial-Behavior-A-Brief-Compilation-of-Profits-RevenuesData Current article with all others above cited for completeness, Published June 4, 2012 with several revisions incorporating more examples. 3. http://www.scribd.com/doc/94647467/Three-Types-of-Companies-FromQuantum-Physics-to-Economics Basic discussion of three types of companies, Published May 24, 2012. Examples of Google, Facebook, ExxonMobil, Best Buy, Ford, Universal Insurance Holdings 4. http://www.scribd.com/doc/96228131/The-Perfect-Apple-How-it-can-bedestroyed Detailed discussion of Apple Inc. data. Published June 7, 2012. 5. http://www.scribd.com/doc/95140101/Ford-Motor-Company-Data-RevealsMount-Profit Ford Motor Company graph illustrating pronounced maximum point, Published May 29, 2012.

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6. http://www.scribd.com/doc/95329905/Planck-s-Blackbody-Radiation-LawRederived-for-more-General-Case Generalization of Plancks law, Published May 30, 2012. 7. http://www.scribd.com/doc/94325593/The-Future-of-Facebook-I Facebook and Google data are compared here. Published May 21, 2012. 8. http://www.scribd.com/doc/94103265/The-FaceBook-Future Published May 19, 2012 (the day after IPO launch on Friday May 18, 2012). 9. http://www.scribd.com/doc/95728457/What-is-Entropy Discussion of the meaning of entropy (using example given by Boltzmann in 1877, later also used by Planck to develop quantum physics in 1900). The example here shows the concepts of entropy S and energy U (and the derivative T = dU/dS) can be extended beyond physics with energy = money, or any property of interest. Published June 3, 2012. 10.The Future of Southwest Airlines, Completed June 14, 2012 (to be published). http://www.scribd.com/doc/102835946/The-Future-for-SouthwestAirlines-The-Unknown-Story-of-Rising-Costs-and-the-Maximum-Point-onProfits-Revenues-Curve Published August 14, 2012. 11.The Air Tran Story: An Important Link to the Future of Southwest Airlines, Completed June 27, 2012 (to be published). http://www.scribd.com/doc/102832984/The-Air-Tran-Story-The-Merger-andMaximum-Point-on-Profits-Revenues-Graph Published August 14, 2012.

12.Annies Inc. A Single-Product Company Analyzed using a New Methodology, http://www.scribd.com/doc/98652561/Annie-s-Inc-A-SingleProduct-Company-Analyzed-Using-a-New-Methodology Published June 29, 2012 13.Google Inc. A Lovable One-Trick Pony Another Single-product Company Analyzed using the New Methodology. http://www.scribd.com/doc/98825141/Google-A-Lovable-One-Trick-PonyAnother-Single-Product-Company-Analyzed-Using-the-New-Methodology, Published July 1, 2012. 14.GT Advanced Technologies, Inc. Analysis of Recent Financial Data, Completed on July 4, 2012. (To be published).
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15.Disappearing Brands: Research in Motion Limited. An Interesting type of Maximum Point on the Profits-Revenues Graph http://www.scribd.com/doc/99181402/Research-in-Motion-RIM-Limited-WillDisappear-in-2013 Published July 5, 2012. 16.Kia Motor Company: A Disappearing Brand http://www.scribd.com/doc/99333764/Kia-Motor-Company-A-DisppearingBrand, Published July 6, 2012. 17.The Perfect Apple-II: Taking A Second Bite: A Simple Methodology for Revenues Predictions (Completed July 8, 2012, To be Published) http://www.scribd.com/doc/101503988/The-Perfect-Apple-II, Published July 30, 2012. 18.http://www.scribd.com/doc/101062823/A-Fresh-Look-at-Microsoft-After-itsHistoric-Quarterly-Loss Microsoft after the quarterly loss, Published July 25, 2012. 19.http://www.scribd.com/doc/101518117/A-Second-Look-at-Microsoft-After-theHistoric-Quarterly-Loss , Published July 30, 2012. 20.http://www.scribd.com/doc/103265909/A-Brief-Analysis-of-Groupon-s-ProfitsRevenues-Data Published August 19, 2012. 21.http://www.scribd.com/doc/103027366/Groupon-Analysis-of-ProfitsRevenues-Data-and-its-Business-Model Published August 16, 2012. More detailed analysis including discussion of the idea of a work function. 22.http://www.scribd.com/doc/103369016/Analysis-of-Zynga-s-Profits-RevenuesData-Maximum-point-on-the-profits-revenues-curve Published August 20, 2012. General Motors Financial Data 23.http://www.scribd.com/doc/103600274/The-New-GM-A-Brief-Analysis-of-theProfits-Revenues-Data-through-1Q2011, Published May 9, 2011 and againon August 22, 2012, Discussion of the new GM data from 1Q2010 to 1Q2011. 24.http://www.scribd.com/doc/103607023/Why-Can-t-General-Motors-be-morelike-Microsoft-The-new-GM-may-just-be Published August 22, 2012. ******************************************************************

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The Unemployment Problem: Evidence for a Universal value of h in the unemployment law. 25.http://www.scribd.com/doc/100984613/Further-Empirical-Evidence-for-theUniversal-Constant-h-and-the-Economic-Work-Function-Analysis-ofHistorical-Unemployment-data-for-Japan-1953-2011 Single universal value of h for US, Canada and Japan in the unemployment law y = hx + c, Published July 24, 2012. 26.http://www.scribd.com/doc/100939758/An-Economy-Under-StressPreliminary-Analysis-of-Historical-Unemployment-Data-for-Japan, Published July 24, 2012. 27.http://www.scribd.com/doc/100910302/Further-Evidence-for-a-UniversalConstant-h-and-the-Economic-Work-Function-Analysis-of-US-1941-2011-andCanadian-1976-2011-Unemployment-Data Published July 24, 2012. 28.http://www.scribd.com/doc/100720086/A-Second-Look-at-Australian-2012Unemployment-Data, Published July 22, 2012. 29.http://www.scribd.com/doc/100500017/A-First-Look-at-AustralianUnemployment-Statistics-A-New-Methodology-for-Analyzing-UnemploymentData , Published July 19, 2012. 30.http://www.scribd.com/doc/99857981/The-Highest-US-Unemployment-RatesObama-years-compared-with-historic-highs-in-Unemployment-levels , Published July 12, 2012. 31.http://www.scribd.com/doc/99647215/The-US-Unemployment-Rate-Whathappened-in-the-Obama-years , Published July 10, 2012. **************************************************************** Traffic-fatality and Teen pregnancy problem 32.http://www.scribd.com/doc/101982715/Does-Speed-Kill-Forgotten-USHighway-Deaths-in-1950s-and-1960s Published August 4, 2012. 33.http://www.scribd.com/doc/101983375/Effect-of-Speed-Limits-on-FatalitiesTexas-Proofing-of-Vehciles Published August 4, 2012. 34.http://www.scribd.com/doc/101828233/The-US-Teenage-Pregnancy-Rates-1 Published August 2, 2012. 35.http://www.scribd.com/doc/102384514/A-Second-Look-at-the-US-TeenagePregnancy-Rates-Evidence-for-a-Predominant-Natural-Law Published August 8, 2012.
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About the author V. Laxmanan, Sc. D.

Email: vlaxmanan@hotmail.com The author obtained his Bachelors degree (B. E.) in Mechanical Engineering from the University of Poona and his Masters degree (M. E.), also in Mechanical Engineering, from the Indian Institute of Science, Bangalore, followed by a Masters (S. M.) and Doctoral (Sc. D.) degrees in Materials Engineering from the Massachusetts Institute of Technology, Cambridge, MA, USA. He then spent his entire professional career at leading US research institutions (MIT, Allied Chemical Corporate R & D, now part of Honeywell, NASA, Case Western Reserve University (CWRU), and General Motors Research and Development Center in Warren, MI). He holds four patents in materials processing, has co-authored two books and published several scientific papers in leading peer-reviewed international journals. His expertise includes developing simple mathematical models to explain the behavior of complex systems. While at NASA and CWRU, he was responsible for developing material processing experiments to be performed aboard the space shuttle and developed a simple mathematical model to explain the growth Christmas-tree, or snowflake, like structures (called dendrites) widely observed in many types of liquid-to-solid phase transformations (e.g., freezing of all commercial metals and alloys, freezing of water, and, yes, production of snowflakes!). This led to a simple model to explain the growth of dendritic structures in both the ground-based experiments and in the space shuttle experiments. More recently, he has been interested in the analysis of the large volumes of data from financial and economic systems and has developed what may be called the Quantum Business Model (QBM). This extends (to financial and economic systems) the mathematical arguments used by Max Planck to develop quantum physics using the analogy Energy = Money, i.e., energy in physics is like money in economics. Einstein applied Plancks ideas to describe the photoelectric effect (by treating light as being composed of particles called photons, each with the fixed quantum of energy conceived by Planck). The mathematical law deduced by
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Planck, referred to here as the generalized power-exponential law, might actually have many applications far beyond blackbody radiation studies where it was first conceived. Einsteins photoelectric law is a simple linear law, as we see here, and was deduced from Plancks non-linear law for describing blackbody radiation. It appears that financial and economic systems can be modeled using a similar approach. Finance, business, economics and management sciences now essentially seem to operate like astronomy and physics before the advent of Kepler and Newton.

Cover page of AirTran 2000 Annual

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