Public Delusional About Profits (Poll, Commentary)

The public’s misapprehensions are even worse when you consider that the “real” 7.5% figure includes only outliers (publicly-traded companies) among outliers (successful firms) among outliers (currently surviving firms). >>>

The public thinks the average company makes a 36% profit margin, which is about 5X too high

How do the public’s estimates of corporate profit margins compare to reality? Not surprisingly they are off by a huge margin. According to this Yahoo!Finance database for 212 different industries, the average profit margin for the most recent quarter was 7.5% and the median profit margin was 6.5%. Interestingly, there wasn’t a single industry out of 212 that had a profit margin as high as 36% in the most recent quarter. The industry “REIT-Diversified” had the highest profit margin at 33.5% followed by just one other industry – Wireless Communications at 30.9% – with a profit margin higher than 30%.

“Big Oil” companies (Major Integrated Oil and Gas) make a lot of profits, right? Well, that industry had a below-average profit margin of 5.1% in the most recent quarter. And evil Walmart only made a 3.1% profit margin in the most recent quarter (as I reported recently), which is less than half of the almost 7% average government take on retails sales in the form of state and local sales taxes. …

Bottom Line: The public’s complete overestimation of how much companies earn in profits as a share of sales explains a lot. If $36 of every $100 in sales at a company like Walmart, McDonald’s, Home Depot, Ford Motor Company or a local dry cleaner or restaurant really did turn into profits, then of course those companies could afford to pay unrealistic living wages of $15 per hour, accept unreasonable demands from labor unions, provide all sorts of generous fringe benefits including weeks of paid holidays, long paid maternity leaves, and gold-plated pension programs, etc. The public that believes in the fantasy-world of sky-high 36% profit margins would naturally think companies are just being greedy and stingy when don’t pay higher “living wages” and have to be forced to do so through minimum wage, or living wage, legislation.

Brought to you by: