They don't explain how they did their calculations so I don't know how they arrived at the number they did. But we can do our own calculations since we have the data.
Change in cost of goods sold from 2020 to 2022.
(3,787,389 - 2,159,871) / 2,159,871 = ~ .75
Their cost of goods sold increased 75% from 2020 to 2022.
Change in net sales from 2020 to 2022
(5,569,902 - 2,575,100) / 2,575,100 = ~ 1.16
Their net sales increased 116% during that same period.
This same math for their gross profit shows an increase of ~ 330%
So again no idea how they arrived at their figure but even 330% gross profit increase is still very large.
If that is what they did then it's exactly what I said - math fail.
net sales / cogs
2,575,100 / 2,159,871 = +19.2%
5,569,902 / 3,787,389 = +47.1%
That's a gross profit margin increase of 27.9%, not 330%.
To show how ridiculous their supposed method is, consider a company that made a gross profit of $0 in Q1 2020 and $1 in Q1 2022. Can't get profits much lower than that. But 1 / 0 =
Infinite 'profit increase'!
No wonder they excluded companies that made a loss.
But even 27.9% is meaningless as an indicator of 'greedflation' without context. Cost Of Goods Sold is not the only cost of running a business. In Q1 2020 Steel Dynamics had gross profit of $415,229, but a net income after tax of only $187,340 (on sales of $2,575,100). In Q1 2022 the net income was $1,103,931 on sales of $5,569,902. So the
net profit margin was:-
Q1 2020 2,575,100 / (2,575,100 - 187,340) = +7.8%
Q1 2022 5,569,902 / 5,569,902 - 1,103,931) = +24.7%
Sound excessive? Oh yeah, they
increased their profits while consumers were hurting. The cads!
But this number still tells us nothing about the actual selling price or whether the profit was 'reasonable'. Perhaps they were able to lower their costs by being more efficient and/or getting scrap metal at a lower price, and managed to keep prices down
as well as making more money. Or perhaps they were suffering from higher costs too and just overestimated the selling price required to stay afloat. Should they be excoriated for that?
Do you concede that a CEO is on record admitting they like inflation because they can use it to increase profits beyond their increased costs and that it is incredibly unlikely that this is unique to this one company?
If the article focused on those individuals it would have had more credibility. Instead it painted with a broad brush and presented ludicrous numbers that border on libel, as well as grossly misinforming the public. If that was my paper I would force those responsible to publish a front page retraction that would stay up forever as a reminder to readers that journalists often get stuff badly wrong.
Do you concede that well known organizations like the Institute for Public Policy Research, the International Monetary Fund, and the Federal Reserve have all done studies in which they conclude that corporate profits contributed to inflation?
This doesn't mean what you think it does.
In times of uncertainty with rapidly increasing costs and general instability you should
expect businesses to increase their gross profit margins to cope with the higher risk. If they happen to come out better off in the end it's not necessarily because they were 'greedy'. Predicting a chaotic market is
hard, and if you get it wrong the result could be bankruptcy. You might also have to cut services, reduce R&D, sack staff etc. which will be worse than making enough money to keep the business healthy.
2020 to 2022 is probably the worst crisis the World has had to face in recent history (it's certainly the worst in my 66 year lifetime). To expect corporations to operate as efficiently as possible in these troubled times is not reasonable. Sure some CEOs welcomed the opportunity to profit from the chaos, but many more wished they didn't have to deal with it.
Blaming the mild inflation we are currently experiencing on 'greedflation' is just wrong. But nobody wants to face up to the real cause - irresponsible people who didn't treat the virus seriously. Chickens are coming home to roost and we need a convenient scapegoat.
