NIPA vs. S&P 500 Profits Margins

Corporate Finance Briefing: NIPA vs. S&P 500 Profits Margins

Yardeni Research, Inc.

April 9, 2021

Dr. Edward Yardeni

516-972-7683 eyardeni@

Joe Abbott

732-497-5306 jabbott@

Please visit our sites at blog.

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Table Of Contents Table Of Contents

S&P 500 Operating Profit Margins

Profit Margins

3-5

Margins & Costs

6-8

April 9, 2021 / NIPA vs. S&P 500 Profits Margins

Yardeni Research, Inc.



Profit Margins

Figure 1.

2200

AFTER-TAX CORPORATE PROFITS: NIPA vs. S&P 500* 2000 (billion dollars, quarterly)

1800

1600

NIPA After-Tax Profits

(saar)

1400

Based on Tax Returns*

1200

From Current Production**

1000

800

2200 Q4

2000

1800

1600

1400 Q4

1200

Q4

1000

800

600

600

400

400

200

200

0

0

S&P 500

-200

Net Income

-200

-400

(actual x 4, nsa)

-400

-600

Operating (S&P data)

-600

Reported on GAAP basis (S&P data)

-800

-800

-1000

-1000

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24

* Excluding IVA & CCadj. ** Including IVA & CCadj. These two adjustments restate the historical cost basis used in profits tax accounting for inventory withdrawals and

depreciation to the current cost measures used in GDP. Source: Bureau of Economic Analysis and Standard & Poor's.

Figure 2.

12

12

CORPORATE PROFITS MARGINS IN GDP (after-tax profits as a percent of nominal GDP)

10

10

Q4

8

8

6

6

4

4

After-Tax Profits Margins

Using Book Profits* (9.7)

Using Cash-Flow Profits** (9.1)



2

2

48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24

* Tax-accounting basis as reported to IRS. ** Book profits including Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis

used in profits tax accounting for inventory withdrawals and depreciation to the current cost measures used in GDP. Note: Shaded areas are recessions according to the National Bureau of Economic Research. Source: Bureau of Economic Analysis.

Page 3 / April 9, 2021 / NIPA vs. S&P 500 Profits Margins

Yardeni Research, Inc.



Profit Margins

Figure 3.

13

S&P 500 OPERATING PROFIT MARGIN (I/B/E/S data)

12

& AFTER-TAX CORPORATE PROFIT MARGIN

(without IVA & CCAdj)

11

13

12 Q4

11

10

Corporate Profits After Tax*

(as a percent of nominal GDP)

9

(blue line)

10 Q4

9

8

8

7

7

6

6

5

5

4

S&P 500 Operating Profit Margin

4

Using I/B/E/S Earnings**

(percent, quarterly, nsa)

3

(red line)

3



2

2

48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24 26

* After-tax profits as reported to IRS excluding Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits tax accounting for inventory withdrawals and depreciation to the current cost measures used in GDP.

** Operating Profit Margin derived using revenues from S&P and earnings from I/B/E/S data by Refinitiv. Note: Shaded areas are recessions according to the National Bureau of Economic Research. Source: Standard & Poor's, Bureau of Economic Analysis, and I/B/E/S data by Refinitiv.

Figure 4.

14

14

S&P 500 REPORTED PROFIT MARGIN & AFTER-TAX CORPORATE PROFITS MARGIN ( without IVA & CCAdj)

12

12

10

Corporate Profits After Tax*

(as a percent of nominal GDP) (9.7)

8

10 Q4

Q4 8

6

6

4

S&P 500 Profit Margin: Reported

4

(percent) (8.6)

2

2



0

0

48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24 26

* After-tax profits as reported to IRS excluding Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment (CCAdj), which restate the historical cost basis used in profits tax accounting for inventory withdrawals and depreciation to the current cost measures used in GDP. Note: Shaded areas denote recessions according to the National Bureau of Economic Research. Q4-2008 not shown because of large negative value. Source: Standard & Poor's, I/B/E/S data by Refinitiv, and Bureau of Economic Analysis.

Page 4 / April 9, 2021 / NIPA vs. S&P 500 Profits Margins

Yardeni Research, Inc.



Profit Margins

Figure 5.

14

S&P 500 OPERATING PROFIT MARGIN & AFTER-TAX CORPORATE PROFIT MARGIN (with IVA & CCAdj)

12

Corporate Profits After Tax*

(as a percent of nominal GDP) (9.1)

S&P 500 Profit Margin: Operating

10

(percent) (11.6)

8

14

12 Q4

10 Q4

8

6

6

4

4

2

2

47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23 25

Note: Shaded areas denote recessions according to the National Bureau of Economic Research. * Profits after tax with IVA and CCAdj.

Source: Standard & Poor's Corporation, I/B/E/S data by Refinitiv, and Bureau of Economic Analysis.

Figure 6.

15

S&P 500 REPORTED PROFIT MARGIN & AFTER-TAX CORPORATE PROFIT MARGIN (with IVA & CCAdj)

10

15

10 Q4

5

5

0

0

Corporate Profits After Tax* (as a percent of nominal GDP) (9.1)

-5

S&P 500 Profit Margin: Reported

-5

(percent) (8.6)

-10

-10



-15

-15

47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23

Note: Shaded areas denote recessions according to the National Bureau of Economic Research. * Profits after tax with IVA and CCAdj.

Source: Standard & Poor's Corporation, I/B/E/S data by Refinitiv, and Bureau of Economic Analysis.

Page 5 / April 9, 2021 / NIPA vs. S&P 500 Profits Margins

Yardeni Research, Inc.



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