Financial information company Sageworks has
released its ranking of the most profitable industries. By analyzing
the financial statements of privately held companies and scaling net profit
margin over the last 12 months, Sageworks found seven of the top 15
industries are related to health care or real estate. The list also includes
many service-based businesses that can keep costs low while charging premiums,
noted Sageworks analyst Jenna Weaver. While the top three industries
remain the same as last year, there are some shifts and newcomers. For some
perspective, the average profit for privately held companies is 7.2%, according to
Sageworks data. Net profit margins exclude taxes and include owner
compensation in excess of their market-rate salaries.
No. 1 Accounting, Tax
Preparation, Bookkeeping, and Payroll Services
Net Profit Margin: 19.8%
A consistent demand of
services and low overhead costs have pushed accounting and tax preparation to
the top of this year’s list, increasing from a revised 16.3% profit margin to
19.8%. This industry sector also appeared as #20 in Sageworks' list of
fastest-growing industries over the last year.
No. 2 Legal Services
Net Profit Margin: 17.8%
Legal services topped
last year’s list with a profit margin of 18.3% but falls down to second this
year with a 17.8% margin. Despite the small dip, the industry’s overhead costs
remain low. There’s little need for heavy investment costs, other than
salaries, and demand is constant.
No. 3 Oil and Gas
Extraction
Net Profit Margin: 16.4%
Oil and gas extraction
maintains its third place spot as America’s domestic production of oil and
shale gas continues to increase and energy imports decline. The profit margin
increased from 15.1% to 16.4%.
No. 4 Commercial and Industrial
Machinery and Equipment Rental and Leasing
Net Profit Margin: 16.4%
The machinery and
equipment rental industry returns to the list in a tie for third, jumping from
13.4% to 16.4%. The industry was also listed as No. 16 in Sageworks' list
of fastest-growing industries. With several of the top 15 related to real
estate, the industry may be growing due to more home construction.
No. 5 Offices of Dentists
Net Profit Margin: 14.9%
A service that everyone
is encouraged to take part in twice a year, dentistry returns to this year’s
list. Profitability increased from 12.7% to 14.9%, perhaps due to more demand
as the Affordable Care Act supports more insured citizens.
No. 6 Lessors of Real
Estate
Net Profit Margin: 14.1%
Rounding out last year’s
list with 10.4% growth, real estate leasing jumps to a three-way tie for the
sixth spot with 14.1%. The return of the housing market supports a decline in
vacancy and, therefore, more business for landlords, who can begin to increase
rental rates.
No. 7 Offices of Physicians
Net Profit Margin: 14.1%
Physicians win out over
other health practitioners this year, with a profit margin up to 14.1% from
12.2%. Similar to the consistency behind dentistry, physicians are in constant
demand, supported by an even better-insured population.
No. 8 Offices of Real
Estate Agents and Brokers
Net Profit Margin: 14.1%
Real estate agents and
brokers were No. 1 in Sageworks' report of the fastest-growing
industries with a sales percent change of 23% over the last year. They
return to this year’s list of the most profitable to 14.1% profit from 11.6%, a
clear indication of the housing market’s return.
No. 9 Offices of Other
Health Practitioners
Net Profit Margin: 12.6%
Health practitioners add
to the list’s dominant health care sector. Profit margins remained steady,
12.6% from 12.5% last year, but that’s enough for a valuable profit and a tie
on this year’s most profitable list.
No. 10 Management of
Companies and Enterprises
Net Profit Margin: 12.6%
A newcomer to the list,
privately-held management companies have pushed to a 12.6% profit margin.
Sageworks analyst Jenna Weaver noted that cost cutting was the big
driver with a decrease in direct costs of goods sold and overhead costs.
No. 11 Outpatient Care
Centers
Net Profit Margin: 11.7%
Outpatient care centers
joins as the list’s fourth industry related to health care and the only one
that experienced a decline in profit, from 13.8% to 11.7%. While
outpatient visits may be on the rise, providing cheaper options than hospital
stays, costs may have risen that affect the industry’s bottom line.
No. 12 Other Schools and
Instruction
Net Profit Margin: 11.3%
This industry sector
includes fine arts schools, sports instruction, language schools, exam prep,
automobile driving and other more specialized schools than last year’s
inclusion of colleges, universities and professional schools. A decline in
overhead costs appears to be one of the main forces bringing it to the list.
No. 13 Activities Related
to Real Estate
Net Profit Margin: 10.8%
We’ve seen landlords and
real estate agents take top spots in this year’s list, so it should be no
surprise other activities supporting the market have increased in
profitability. This sector includes property managers and appraisers.
No. 14 Death Care
Services
Net Profit Margin: 10.7%
Another newcomer, death
care services, including undertakers and funeral homes, added to this year’s
list with a profit margin of 10.7%. This industry is another with consistent
and increasing demand and low overhead.
No. 15 Support Activities
for Mining
Net Profit Margin: 10.5%
Profit did dip for mining
services, from 12.0% to 10.5%, but it still managed to round out this year’s
list. Sageworks analyst Jenna Weaver identified a slight increase in overhead
costs, but the demand for domestic exploration for minerals and oil and
gas extraction (this year’s No. 3) supports a continued profit.
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