Profit ratio (economy)

The profit rate is an economic or business indicator that compares the profits of the entrepreneur with the national income or sales .

General

When it comes to the profit rate, economics and business administration differ in the use of different aggregates . In economic terms, profit is the total income from entrepreneurship in a country; in economic terms, it is the annual surplus of an individual company within a financial year . In economic terms, the national income or gross value added serves as the denominator , and in economic terms the sales revenue of a company.

Economics

The profit ratio is the income from entrepreneurship ( entrepreneur's wages ) and assets ( investment income such as interest income , dividends , rental and lease income ), divided by gross value added or by national income. Since investment income and rental income also flow into private households , the investment income must be adjusted for this component. The profit ratio is then obtained by comparing the adjusted investment income with national income or gross value added : ${\displaystyle G_{q}}$ ${\displaystyle K}$ ${\displaystyle Y}$

${\displaystyle G_{q}={\frac {K}{Y}}}$.

It indicates what proportion of the production process resulting value to the compensation of the production factor capital omitted.

The functional distribution of income is measured by the profit share and the wage share. Since the wage share includes income from employment , it forms the remainder of the national income, so that the earned income with the profit income - attributable to private households - results in the national income : ${\displaystyle L_{q}}$ ${\displaystyle L}$ ${\displaystyle G}$ ${\displaystyle Y}$

${\displaystyle L+G=Y}$.

So is

${\displaystyle G_{q}+L_{q}=1}$.

If labor costs rise , the profit rate decreases and vice versa. Want entrepreneurs avoid this, they must have a pass-through of wage increases on prices try.

Given the savings rate , the profit rate is a function of the investment rate . According to Nicholas Kaldor , the profit ratio is positively correlated with the investment ratio , because entrepreneurs can determine the level of their profit ratios through their investments . With the same savings rate, a higher investment rate is always associated with a higher profit rate. A higher investment rate can, however, also be offset by a lower profit rate, but only if households' propensity to save has increased accordingly. Increasing capital productivity requires a falling profit and investment ratio and a growing consumption ratio .

The level of the profit ratio is also dependent on the development of investment income, on their taxation through income taxes and on the change in national income. But structural changes in the labor force , for example through an increase in the number of employees and a decrease in the number of self-employed , reduce the profit rate and increase the wage share accordingly.

statistics

Profit ratio of gross value added of non-financial corporations :

country	Profit rate 2007 in%	Profit rate 2017 in%
Eurozone	42.25	40.82
Belgium	42.42	43.06
Czech Republic	52.05	49.30
Denmark	39.63	41.58
Germany	46.63	41.54
Ireland	52.29	72.55
Spain	37.71	43.61
France	33.35	31.88
Italy	45.16	42.59
Luxembourg	38.17	31.00
Malta	53.17	61.19
Netherlands	43.39	39.83
Austria	47.68	42.89
Sweden	40.38	37.29
United Kingdom	35.30	36.26
Switzerland	35.22	32.41

The highest profit rates were in Ireland and Malta in 2017 , which were also low-tax countries , while the lowest were in Luxembourg and France , which are among the high-tax countries . The relationship between profit ratio and tax level results from profit-dependent income taxes, which influence the amount of profit ratios.

Business administration

The company's profit share is defined as the gross operating surplus divided by gross value added. In the balance sheet, the business profit rate can be shown as a comparison of the operating result with the sales revenue : ${\displaystyle G_{q}}$ ${\displaystyle B}$ ${\displaystyle U}$

${\displaystyle G_{q}={\frac {B}{U}}}$.

Alternatively, the EBIT margin can also be viewed as a profit ratio:

${\displaystyle {\text{EBIT-Marge in Prozent}}={\frac {\text{EBIT}}{\text{U}}}\cdot 100\,\%}$.

As a profit rate on sales , it compares the annual surplus or profit before tax with the sales revenue and gives an insight into a company's earnings position . Similar indicators are the gross margin and the return on sales .

An increase in the profit rate is possible on the one hand by increasing the sales prices and sales volume (at constant sales prices) and on the other hand by reducing costs .

statistics

Return on sales in German SMEs :

Branch	Return on sales 2016 in%
Average in the middle class	7.3
knowledge-intensive services	14.7
research-intensive manufacturing industry	5.4
Construction industry	7.2
other services	4.9
other manufacturing industries	5.2
trade	3.7

Selected DAX companies reported the following net returns on sales in 2017:

Companies	Return on sales 2016 in%	Return on sales 2017 in%
Adidas	5.3	5.2
Allianz SE	10.3	10.1
Bayer AG	10.3	23.1
Beiersdorf AG	10.8	9.8
BMW	7.3	8.8
Commerzbank	4.1	2.7
Daimler AG	5.7	6.6
Deutsche Bank	−4.5	−2.8
E.ON	−41.9	11.0
handle	11.2	12.7
Infineon	11.5	11.2
Lufthansa	5.7	6.7
Merck KGaA	10.9	17.0
Post AG	4.9	4.7
RWE	−12.0	6.9
SAP	16.5	21.4
Siemens	7.0	7.4
Telekom Germany	4.2	7.4
Volkswagen AG	2.5	5.0
Vonovia	45.3	42.9

Vonovia achieved the highest return on sales (42.9%), followed by Bayer AG (23.1%) and SAP (21.4%). Commerzbank and Post presented themselves with rather poor returns, while Deutsche Bank even recorded losses.

Others

The profit rate must not be confused with the profit margin , the latter is part of the price calculation .

literature

• Literature on profit ratio in the catalog of the German National Library

Web links

• Economic cycle, the simple model (accessed October 5, 2015)

Individual evidence

1. ↑ Verlag Dr. Th. Gabler, Gabler Wirtschaftslexikon , Volume 3, 1984, Sp. 1832
2. ↑ Wolfgang Cezanne, Allgemeine Volkswirtschaftslehre , 2005, p. 541
3. ↑ Wolfgang Cezanne, Allgemeine Volkswirtschaftslehre , 2005, p. 433
4. ↑ Willi Albers (Ed.), Handwörterbuch der Wirtschaftswwissenschaft (HdWW) , Volume 2, 1980, p. 267
5. ↑ Nicholas Kaldor, Alternative Theories of Distribution , in: Review of Economic Studies vol. 23, 1955, p. 230
6. ↑ Wolfgang Cezanne, Allgemeine Volkswirtschaftslehre , 2005, p. 543
7. ^ Arnold Zerwas / Horst-Manfred Schellhaass, Simulation Experiments on Income and Wealth Distribution , 1974, p. 50
8. ↑ Horst Hanusch / Thomas Kuhn / Uwe Cantner, Volkswirtschaftslehre 1: Grundlegende Mikro- und Makroökonomie , 2000, p. 98
9. ↑ Eurostat, Profit Share of Gross Value Added of Non-Financial Corporations , 2019
10. ↑ Profit quota from 2016
11. ↑ Gross operating surplus = added value - personnel costs
12. ↑ Horst-Thilo Beyer (Ed.), Finanzlexikon , 1971, p. 160
13. ↑ KfW (Ed.), KfW SME Panel, October 2017, p. 14
14. ↑ Benjamin Knöpfler, Key Financial Figures 30 DAX Companies 2010-2017 , July 2018, p. 1 ff.
15. ↑ positively influenced by the sale of Covestro