Profit Margin Growth

So much in the economy is changing. To keep their balance and prepare for any tumult ahead, business owners should focus on profitability. “If you produce an excellent product that fills a need or provide a service that consumers depend upon, your business is more likely to outlast a potential double-dip recession. But, the real winners—those that will do more than sustain—will be the companies that can produce such a good or provide a service with a high margin. Those businesses will have capital to reinvest at the first sign of market recovery.” (Full article on Sageworks Stats.)

Sageworks analyzed which industries have been growing their profit margin over the last twelve months and should be well-situated if tax code changes or interest rate slips affect profitability. The top 5 winners include

Percentage Growth in Adjusted Net Profit before Taxes over Last 12 Months

Why have these industries been able to trim expenses to improve profitability? “Most of the industries that made the list are heavily dependent upon machinery or inventory to produce their goods or deliver their services. Unlike low-capital businesses that rely heavily on employees and their skill sets, these industries can more easily tweak their margin. For example, these industries can use equipment a little longer than expected or maintain it to prevent replacement costs. They can reduce inventories to improve holding costs. Or, like the service businesses, they can reduce their overhead through layoffs or delayed hiring despite growth. This last one seems to be a real trend among most businesses since hiring is stagnant but revenues are up across the board.”