- Profit margins as measured by Corporate Profits divided by Gross National Product are way over norm.
- We show that profit margins for the S&P500 Index derived as Total Net Profits divided by Total Sales of all non-financial components of the index are way over mean as well.
- We look at profit margins of various sectors and find that high profit margins aren’t limited to service businesses only.
- Reduced SGA and other operating expenses are the primary contributor to above-average profit margins and are supported by lower borrowing costs and lower effective tax rates.
- We hypothesize that the improved margins are primarily a result of management actions that have been increasingly driven by the desire to increase earnings in the short-term even if it happens at the expense of long-term prospects.
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About The Author
Prashant K Trivedi, 54, is a B.Sc (Econ.) graduate from Wharton and also a CFA charter holder. He worked in SG Warburg from 1983 to 1991 in Japan, UK and Singapore. Since then he has been the CIO of his family’s office,the Chairman of Multi-Act Trade and Investments Pvt Ltd and the Chairman of Indian Card Clothing Co Ltd. His vast investment expertise covers Currencies, Fixed Income, Equities, Real Estate and Private Equity.
About The Author
Baijnath Ramraika, 36, is an MBA from the Darden Graduate School of Business, University of Virginia, is a CFA charter holder, and is also a Chartered Accountant from The Institute of Chartered Accountants of India. Baijnath is a partner at Multi-Act Equiglobe (MAEG) and is a Sr. Portfolio Manager at Multi-Act.