A commonly held erroneous viewpoint may cast a long shadow on public debate
By J. Richard Fredericks, Main Management
A poll was taken by Reason-Rupe in 2013 which asked folks “what percent profit on each dollar of sales do you think the average company makes after taxes?” The American public continues to be wildly off the mark about the level of after-tax margins.
According to data from the New York University database (updated January 2018) of 7000 US companies (see here), the average profit margin is 7.9% for all companies and 6.9% for the 6,000+ companies excluding financials. ORC International has done very similar polling and in the 9 previous polls taken by them between 1971 and 1987, the typical margins the public cited ranged between 28% to 37% with an average of 31.6% – again, wildly off the mark but consistently high!
It’s also interesting to note that the Oil and Gas sector, according to the same NYU data, has profit margins below the total market average. This might also come as a surprise to many.
Is it any wonder the public believes that companies are “greedy” and ripping off the public and can afford to sell their products for much less and capable of paying their people more? The actual after-tax non-financial margins are 81% less than what the public thinks (6.9% vs. 36.0%) and the biggest company in the United States, Walmart, can muster only a 2.1% after-tax margin. If indeed actual corporate margins were five-fold higher, we would be much closer to a Utopian employer/employee relationship with all the ‘trimmings’ for everybody – workers, companies, shareholders … everybody!
J. Richard Fredericks is founding partner at Main Management, a participant in the ETF Strategist Channel.
A pioneer in managing all-ETF portfolios, Main Management LLC is committed to delivering liquid, transparent and cost-effective investment solutions. By combining asset allocation insights with smart implementation vehicles, Main Management offers a unique approach that translates into distinct advantages for our clients, including diversification, cost efficiency, tax awareness and transparency. http://www.mainmgt.com.