Posted on 06/03/2019 7:12:54 AM PDT by Yardstick
I find this totally fascinating, though not completely unexpected. When a random sample of American adults were asked the question “Just a rough guess, what percent profit on each dollar of sales do you think the average company makes after taxes?” for the Reason-Rupe poll in May 2013, the average response was 36%! That response was very close to historical results from the polling organization ORC’s polls for a slightly different, but related question: What percent profit on each dollar of sales do you think the average manufacturer makes after taxes? Responses to that question in 9 different polls between 1971 and 1987 ranged from 28% to 37% and averaged 31.6%.
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% (see chart above). 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. Think about it – for every $100 in sales for Walmart, the state/local governments get an average of $6.88 in sales taxes (and as much $9.44 in Tennessee and $9.16 in Arizona, see data here), while Walmart gets only $3.10 in profits!
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 they don’t pay higher “living wages” and have to be forced to do so through minimum wage, or living wage, legislation.
If the average person could realize that a 36% profit margin isn’t even close to reality, and that the typical, median firm has a profit margin of only 6.5%, or almost 30 percentage points below what the public thinks is a normal profit margin, then hopefully the average person would become a little more realistic about how the business world operates. Companies aren’t being stingy when they pay competitive wages, they’re just trying to survive on what are sometimes razor-thin profit margins, in a competitive environment where there’s not a large margin of error. If they’re not operating efficiently and watching costs very carefully, it’s pretty easy for a business to go from a 6.5% profit margin to a 0% break-even situation, and then to losses and bankruptcy — just look at the more than half a million businesses that fail every year.
The various Federal & State governments. By a LARGE margin.
Its intentional; they want our children to grow up thinking that capitalism is exploitative and that companies are evil.”””
EVERY time someone says that to me I ask some of the following questions:
Do you think that Levi makes just one pair of jeans at a time & doesn’t start on another pair until the first pair is sold?
How about the bakery?
How about your pots & pans?
How about the seats in the movie theater?
How about that fancy handbag you covet?
How about that expensive engagement ring you wanted?
How about that car you drive?
How about the airplane you will fly to your resort vacation destination?
I an think of many more.
They just stammer & stammer......
In those years, I also was a grocery cashier. The cans & other non-r=produce items were all marked with a stamped price on it. We were required to call it out because most shoppers never even LOOKED at the marked prices when they grabbed something for the cart.
Produce was a case of being there before your shift started & using a pre-printed form & walking thru the produce department and writing down the prices. I can remember that I hated plum season. There were about 59 different kinds of plums, and it was hard to tell them apart. Never could get the produce manager to just price them all the same.
Now-—ALL produce has a sticker on it. -—AND-—the bar code is read by the scanner & you don’t call out anything.
Government, and by a huge margin.
You guys must not be the public.
Ok, thanks. It didn’t occur to me she was reading the price labels. It figures. Once I got to know her, I realized she couldn’t think her way out of a salmon patty.
NY sales tax is 8%, so the state makes 2.5 times as much as wally does on a buck
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