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Gross Profit Margins By Industry – This is an update of a CD post from a few years ago, with some new data, and supplemented by a video below created by Richard Rider.
When a random sample of American adults was asked the question “Just a rough guess, what percentage of profit do you think the average company makes on every dollar of sales after taxes?” for the May 2013 Reason-Rupe poll, the average response was 36%! That response is very close to the historical results from the voting organization
Gross Profit Margins By Industry
Polls for a slightly different but related question: What percentage of profit do you think per dollar of sales
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After tax? Responses to that question in nine different polls from 1971 to 1987 ranged from 28% to 37% and on average 31.6%.
How does the public’s estimate of a company’s profit margin compare to reality? No wonder they are discounted by a large spread. According to this NYU Stern database for more than 7,000 US companies (updated January 2018) in a variety of industries, the average profit margin is 7.9% for all companies and 6, 9% for over 6,000 companies excluding finance (see chart above). Interestingly, of the nearly 100 industries analyzed by NYU Stern, only one has profit margins as high as 36% – and that is tobacco at 43.3%. The next highest margin is 26.4% for financial services, but over 72% industry margins are single digits and the industry average margins are 6%.
The “Big Oil” companies make a lot of money, right? Well, that industry (Integrated Oil & Gas) had a below-average profit margin of 5.6% for the most recent period analyzed, and the Oil & Gas Exploration and Production industry alone is losing money, showing through a profit margin of -6.6%. . For the retail industry as a whole, the average profit margin is just 2.3% and for the grocery and food retail industry it’s even lower, at just 1.6%. And the devil Walmart only generated a 2.1% profit margin in 2017 (first three quarters), well below the industry average for general retail, possibly because grocery sales now account for more than half of Walmart’s sales, and food margins are lower than retail overall. Interestingly, Walmart’s 2.1% profit margin is actually less than a third of the 6.5% that the average state/local government takes every dollar of Walmart retail sales for tax purposes. revenue. Think about it – for every $100 of sales to Walmart, the state/local government receives an average of $6.50 in sales tax (and up to $10.12 in Louisiana and $9 in sales tax). $.45 in Tennessee, see data here), while Walmart only gets $2.10 after that -profit tax!
Bottom line: The public’s total overestimate of how much money companies make from revenue sharing profits explains a lot. If $36 per $100 in sales at a company like Walmart, McDonald’s, Home Depot, Ford Motor Company, or a local dry cleaner or restaurant are actually profitable, then of course those companies are. can afford to pay an unrealistic minimum wage/living wage of $15 per hour, accept unreasonable demands from labor unions, offer all sorts of generous side benefits including paid holiday weeks, long paid maternity leave and gilded pension schemes etc. The general public who believes in an unrealistic fantasy world, with insanely high profit margins of 36% will naturally think that companies are only greedy and stingy when they don’t pay a higher “living wage” and forced to do so through minimum wage legislation.
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If the average person could realize that a 36% profit margin isn’t even close to reality and that a typical, average company has a profit margin of just under 8% or so
, then hopefully the average person will become a little more realistic about how the business world works. Companies aren’t stingy when it comes to paying competitive wages, they’re just trying to survive on sometimes razor-thin profit margins, in a competitive environment where there’s no big margin of error. If they are not efficient and consider costs very carefully, the business will easily go from a profit margin of 7-8% (and only 1-2% for retailers) to a breakeven situation of 0 %, and then from there to losses and bankruptcy — just look at the more than half a million businesses that fail every year.
Bonus: Here’s the video mentioned above from Richard Rider – “Company Profit Explained (Walmart CEO?)” – who provides some commentary here.
A birthday tribute to trade economist Henry George — He wrote Milton Friedman’s favorite book on international trade Gross margin and profit margin are rates of return used to assess the financial position of a company. Both gross profit margin and profit margin – commonly referred to as net profit margin – measure a company’s profitability relative to revenue generated over a period of time. Both ratios are expressed as percentages but there is a distinct difference between them.
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Profit margin is a percentage measure of profit that represents how much a company earns per dollar of sales. If a company makes more money on each sale, it has a higher profit margin.
Profit margin is the percentage of profit a company retains after deducting expenses from sales revenue. Expressing profit as a percentage of sales, rather than simply stating the amount, is more useful for assessing a company’s financial health.
If a company’s $500,000 profit reflects a 50% profit margin, the company is in a solid financial position, with revenues well above expenses. If that $500,000 is just 1% of the company’s total costs and expenses, the company is virtually insolvent and a slight increase in costs could be enough to push the company into the fold. bankruptcy status.
Gross profit margin is the percentage of a company’s revenue that exceeds its cost of goods sold. It measures a company’s ability to generate revenue from costs associated with production.
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Gross profit margin is calculated by subtracting the cost of goods sold (COGS) from sales. Cost of goods sold, also known as cost of goods sold, is the amount a company must pay to produce the goods or services it sells.
Apple’s net revenue for the quarter ended June 27, 2020 was $59.7 billion and its selling expenses were $37 billion for the period. Apple’s gross margin for the quarter was 38%, ($59.7 billion – $37 billion) / $59.7 billion.
It’s helpful to analyze companies’ profit margins over time to identify any trends and compare margins with companies in the same industry.
When investors and analysts refer to a company’s profit margin, they are usually referring to the net profit margin. Net profit margin is the percentage of net income generated from the company’s sales. Net income is often referred to as a company’s bottom line or net profit.
Gross Profit Margin
Net profit margin indicates whether increased sales translate into increased profits. Net profit includes gross profit (revenue minus cost of goods) plus operating expenses and all other expenses, such as interest on debt and taxes.
For the quarter ended June 27, 2020, Apple’s net revenue was $59.7 billion and its net income was $11.3 billion for the period. Apple’s net profit margin for the quarter was 18.9%, ($11.4 billion / $59.7 billion).
Ask writers to use primary sources to support their work. These include white papers, government data, original reports, and interviews with industry experts. We also refer to original research from other reputable publishers where appropriate. You can learn more about the standards we follow in creating accurate, unbiased content in our editorial policy. Open the Trends explorer above to navigate through the data visualization used for a recent AEI paper written by economist Mike J. Perry.
The American Enterprise Institute is a think tank based in Washington D.C. specializes in the study of government, political, economic and social issues. They recently published an article titled: The public thinks the average company makes a 35% profit margin, about 5 times as high, which describes the average American’s perception of profit margin. profits that firms from different industries can generate on a consistent basis.
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The article gathered information from multiple polling agencies that sampled large groups of the population and came to the conclusion that the average American believes that most companies, regardless of industry, are earn profit at 36%. Using data from New York University professor and researcher Aswath Damodaran, the AEI came to the conclusion that the average American estimate is biased by about 500%. They conclude that the average company earns about 7.9% after taxes and less than a full percentage, 6.9% if the financial industry is excluded.
Metrics stored in ATSD follow the same naming conventions as raw data hosted on Dr Damodaran’s website and are abbreviated as follows:
Cost of goods sold compared to sales comparison. This figure does not take into account operational costs such as taxes, overhead or research and development.
Sales revenue minus cost of goods sold divided by sales revenue. The amount of value created by the industry compared to the intrinsic value of the product.
Solved These Are The Calculation Answers To Help You
Sales revenue minus cost of goods sold, general expenses and sales staff, divided by
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