No. of Recommendations: 16
A lot of interesting stuff in there, thanks for posting the link. I particularly like that he posted some medians, not just averages.
One thing surprised me a bit. He has a section about the rising trend of net margins among the S&P 500,
"As you can see, net profit margins have climbed over the last two decades for US companies, with a number of stories competing for why..."What I found interesting is that the four explanations he mentions do not emphasize two which a researcher at the Fed felt almost entirely explained the situation, at least in the stretch 2002-2022: lower tax rates and lower interest expenses. They posit that the residual may be attributable mainly to rising productivity and lowered costs via globalization/imports. Mr Damodaran mentions but largely dismisses interest rates as a factor under "macro changes", but does not really touch on tax at all.
https://www.federalreserve.gov/econres/notes/feds-...One of Mr Damodaran's four listed causes is a change in the mix of the industries within the index, which makes some sense (remembering that weights in this context should look at revenues and profits, not market caps). Quite aside from interest and tax, Meta naturally turns more of each dollar of revenue into profit than GM does. But it's hard to ignore the Fed figures on what a large contribution interest and tax have had. In the 20 years of their study, EBIT rose 3.6%/year but net profits rose 5.4%/year. Without that gap, after 20 years a normal year's net profits would be 29% lower. That's a lot of explanatory power.
Personally I would also add industry concentration due to falling antitrust enforcement. The great majority of US industries have had a large increase in the market share of the largest 1-4 firms, which tends to lead to successful rent seeking and moves in the direction of monopolistic profitability. Combine that observation with the implications of Figure 3 in the paper by Grullon/Larkin/Michaely, looking at public firms in the stretch 1972-2014. Dividing industries by quintile in terms of the change in the number of firms in the industry, ROA rose by about 1.3% on average among the quintile with the biggest drop in firm count, and fell by about -2.6% in the quintile of industries with the largest rise in firm count. Competition matters for profits, it seems.
Jim
