The False Perception of a Company’s Profitability

The Profit of a Company: Expectations vs Reality

Profit

What do you think is the average profit of a company? A management advisory company conducted a survey by asking people in the streets this same question. The people surveyed believe that the profit of a company is 22.8%. In other words, if your company makes $100 in revenue, taking away all of the expenses, your profit is $22.8.

 

In Germany, the reality is 3.4%. The global standard is approximately in the 7% area, so a company that has a 10% profit is rare, almost. Why is there a misconception? Could it be culturally? People just think that businesses must be profitable because why would someone be an entrepreneur otherwise? Or is it that the lack of information plays a role? Or could it be that the PR of companies speak a different language? Companies are very happy about their sales. Volkswagen vs Toyota, who is able to sell more cars? That’s a big discussion, but profit seems to be secondary. If you are the largest selling company, then you must be doing good.

Profit For German Companies

Why is profit in Germany so bad compared to other countries? 3.4% compared to something in the neighborhood of 7% globally. I believe a lot of it has to do with the German desire to provide top quality. The made in Germany sticker has a price, not only to you as a customer who pays more, but also to the company who loses some of their profit to ensure the quality. So, it is no surprise that Toyota’s revenue is double the amount of Volkswagen’s revenue. What does this mean for you? If you look for quality, buy quality, but if you look for buying shares, but a different one, probably one with higher profitability.

This video was transcribed from a Morning Musing from our YouTube Channel. To see the video, click here.

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