In the video on income statement analysis, they discussed trends. Please pick an industry and find out a trend within that industry and discuss what the trend is and what analysis was used to spot the trend. Please be sure to provide links to your research.
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An industry with an Operating Margin (OM) trend is the U.S. retirement and pension plans industry. Operating margin is an analytical method of measuring the amount of profit a company makes on each dollar of sales after paying for the costs of production. Some examples of those costs are wages and raw materials. Those costs are assessed prior to paying interest or tax. This analysis formula is a company’s operating income divided by its net sales/revenue. For these purposes, higher ratios are usually preferred because that reflects that the company is efficient in its operations and is good at converting sales into profits. Adam Hayes from Investopedia summarizes this with, “A company’s operating margin, sometimes referred to as return on sales (ROS), is a good indicator of how well it is being managed and how efficient it is at generating profits from sales.” (Hayes, 2021, p. 1) Analysis that led to spotting this trend was the discovery of strong investment gains and steady growth in contributions in this industry over the last five years. In 2017, revenue growth was predominantly strong and increased to 115.6% due to significant equity gains. It is likely relevant to take note of what changed in 2016 to positively affect those increases. Those gains were maintained through 2020. This increase in contributions led to the observation that the margin between operating income and revenue has increased. This uptick is expected to maintain through 2021 at a rate of 19.1%, but that seems like a very unreliable prediction. A lot has changed in 2021 which affects national and international economics. (IBIS, 2021)
Hayes, A. (2021). Operating Margin. Investopedia. Retrieved from https://www.investopedia.com/terms/o/operatingmargin.asp (Links to an external site.)
IBIS, W. (2021). Industries with the Highest Profit Margin in the US in 2021. IBIS World. Retrieved from https://www.ibisworld.com/united-states/industry-trends/?ctid=1<id=12&ksid=1&ismm=0
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