Episode Details

Milton Friedman posited that the social responsibility of a business is to generate profits,. That view has increasingly come under assault from those who believe that businesses have greater responsibilities to society and the planet, but it has become increasingly clear that trying to muddy up business purpose with social purpose serves neither business nor society well. In this session, I look at the profitability of businesses in 2025, starting with aggregated profits by sector, and then moving to scaled versions of profits. The first scaling is to revenues, and the resulting profit margins give us insight into business economics, from unit economics to economies of sale to the effects of debt and taxes. Not surprisingly, these margins vary widely across sectors and industries. The second scaling is to capital invested, as a basis for then comparing to what this capital could have earned elsewhere on investments of equivalent risk to estimate excess returns. Looking at returns and excess returns across companies, it becomes clear that most companies have trouble earning enough to cover their costs of equity and capital, and that the business landscape is tilted in favor of the largest companies. As we look at the effects of AI, I remain convinced that it will make businesses collectively less profitable, and increase the tilt towards the biggest companies.
Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/DataUpdate6for2026.pdf
Blog Post: https://aswathdamodaran.blogspot.com/2026/02/data-update-6-for-2026-in-search-of.html
Paper on accounting returns (long and boring): https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1105499.
Data on industry averages
1. Margins for US and Global:
a. US: https://pages.stern.nyu.edu/~adamodar/pc/blog/IndustryMarginsUS.xlsx
b. Global: https://pages.stern.nyu.edu/~adamodar/pc/blog/IndustryMarginsGlobal.xlsx
2. Returns and Excess Returns for US and Global
a. US: https://pages.stern.nyu.edu/~adamodar/pc/blog/IndustryReturnsUS.xlsx
b. Global: https://pages.stern.nyu.edu/~adamodar/pc/blog/IndustryReturnsGlobal.xlsx

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