I want to show that corporate profit as a percentage of revenues are at an unsuistainable high level?

Question

What are the key economic/financial data that I will need to show this? My current line of thinking is that if Corporate profit as a % of GDP is unusually high then so will corporate profit as a % of revenue.....is this a true assumption? If so whats the rationale
Thanks all!! (Accounting major, thinking too hard about economics)

Answer 1

Corporate profits as a percentage of GDP is not really a very useful indicator of anything.

Corporate profits as a percentage of revenue makes sense, but you have to very careful in evaluating what is "sustainable"

For example, profit margins in commodity industries tend to be much lower than profit margins in monopolies - whether or not they are legal monopolies (such as Apple iPods, drugs with active and enforceable patents) - with most industries and companies falling between the extremes.

As a general rule, you can use historical data and trends to determine "sustainability" but even there, you have to be careful. For example, a number of American commodity corporations got out of the commodity business and moved to the high margin portions of their industry.

One example is how the big American chemical companies, which started mass production of polyethylene eventually got out of that market when competition drove down profit margins and began concentrating more heavily on more profitable plastics, etc.

Another is the American steel industry, which has moved out of low carbon steel in standard shapes and into specialty steels - either special alloys or special shapes.

Yet another is the semiconductor industry.

So for any individual company, you have to be careful to make sure that the old data is indeed comparable to the newer.

This is not trivial. Massaging the raw data to extract the desired information is what many professional economists spend most of their time doing.