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Print Version. The American economy is well into its eighth year of expansion. If it lasts through May it will become the second longest expansion in modern history. As the expansion grows longer, the natural question is how much life does it have left? Expansions do not die of old age. This report lays out a framework to explore whether this is occurring.

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By comparing earnings before interest and taxes EBIT to sales, operating profit margins show how successful a company's management has been at generating income from the operation of the business. This is the calculation:.

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This ratio is a rough measure of the operating leverage a company can achieve in the operational part of its business.

It indicates how much EBIT is generated per dollar of sales.

Tight labor markets, challenged profit margins, and a flat yield curve already provided the US with a late-cycle backdrop. Severe near-term disruption in US manufacturing and retail goods markets is likely, as bills of lading for imported goods have plummeted over the past month amid China's shutdown.

High operating profits can mean the company has effective control of costs, or that sales are increasing faster than operating costs. Knowing operating profit also allows an investor to do profit-margin comparisons between companies that do not issue a separate disclosure of their cost of goods sold figures.

Operating profit measures how much cash the business throws off, and some consider it a more reliable measure of profitability since it is harder to manipulate with accounting tricks than net earnings. Naturally, because the operating profit margin accounts for administration and selling costs as well as materials and labor, it should be a much smaller figure than the gross margin. Net profit margins are those generated from all phases of a business, including taxes.

In other words, this ratio compares net income with sales.

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It comes as close as possible to summing-up in a single figure how effectively the managers are running a business:. To be comparable from company to company and from year to year, net profits after tax must be shown before minority interests have been deducted and equity income added. Not all companies have these items.

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Also, investment income, which is wholly dependent upon the whims of management, can change dramatically from year to year. Just like gross and operating profit margins, net margins vary between industries.

By comparing a company's gross and net margins, we can get a good sense of its non-production and non-direct costs like administration, finance, and marketing costs. These differences provide some insight into their distinct cost structures.

Us business cycle dating based on profit margins

Compared to its bigger cousins, the discount airline industry spends proportionately more on finance, administration, and marketing, and proportionately less on fuel and flight crew salaries. In the software business, gross margins are very high while net profit margins are considerably lower.

This shows that marketing and administrative expenses in this industry are very high, while the costs of sales and operating costs are relatively low. When a company has a high profit margin, it usually means that it also has one or more advantages over its competition.

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Companies with high net profit margins have a bigger cushion to protect themselves during hard times. Companies with profit margins reflecting a competitive advantage can improve their market share during the hard times, leaving them even better positioned when things improve. Margin analysis is a great tool to understand the profitability of companies.

It tells us how effective management can wring profits from sales, and how much room a company has to withstand a downturn, fend off competition, and make mistakes. But, like all ratios, margin ratios never offer perfect information.

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They are only as good as the timeliness and accuracy of the financial data that is fed into them. Correct analysis also depends on a consideration of the company's industry and its position in the business cycle. Margin ratios highlight companies that are worth further examination. As with any ratio used on its own, margins tell us a lot, but not the whole story, about a company's prospects.

Angelo Corelli.

The Business Cycle - Economics

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Sep 30, The average profit margin is going to vary, of course, from business to business, and from industry to industry. In a study done by the Government of Canada, titled: SME Operating Performance, and corroborated by the US Govt Small Business Administration survey, they looked at profits by sector, and the numbers varied big time. Business-cycle maturity indicators: Monetary Accommodation (real FFR-r*)(g) Corporate Operating Margins: 13(g) Residential Investment/GDP: 3(g) Unemployment Rate Gap(y) Slope of the Treasury Yield Curve (UST y) (y) Cyclically Adjusted S&P P/E ratio (CAPE) (y) Please see Appendix for detailed discussion of indicators. July 3, / S&P Sectors & Industries Profit Margins Yardeni Research, Inc. S&P Operating Profit Margins S&P Profit Margin S&P Sectors Operating Profit Margins 7 S&P Sectors Forecasted & Actual Profit Margins 8 Communication Services Consumer Discretionary Consumer Staples 9 Energy 10 Health Care

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Jun 05, S&P REPORTED PROFIT MARGIN & AFTER-TAX CORPORATE PROFIT MARGIN (with IVA & CCAdj) Q1 S&P Profit Margin: Reported (percent) Corporate Profits After Tax* (as a percent of nominal GDP) Note: Shaded areas denote recessions according to the National Bureau of Economic Research. * Profits after tax with IVA and Size: 58KB. The average margin on a bike sold in a reputable bike shop is about 34%. However, this number can be very misleading to most people. For example: $1, bike = $ profit. Of that $, it cost about $5 a day to house that bike in the average sho. There are two types of profit margins. Small business owners use the gross profit margin to measure the profitability of a single product. If you sell a product for $50 and it costs you $35 to.

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Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice.

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The telecommunications equipment area of the sector tends to generate higher net profit margins than the telecommunications service area (versus %, based on New York University's Stern. May 21, Knowing that a company has a gross margin of 25or a net profit margin of 5tells us very little. As with any ratio used on its own, margins tell us a lot, but not the whole story, about a. Jun 25, This statistic shows corporate profits (or earnings) in the U.S. up to , by quarter. Corporations in the U.S. made profits of around trillion U.S. dollars in the first quarter of

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