Recommended Reading: Distributor Profitability Gets Boost - Modern Distribution Management

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Recommended Reading: Distributor Profitability Gets Boost

Distributors see highest rate of return on assets in five years.
Eric-Smith-84x84
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Even with a flattening of return on assets between 2011 and 2013, wholesale distribution has enjoyed modest, but important, improvement in ROA, according to Al Bates, director of research for the Profit Planning Group and principal at the Distribution Performance Project, in Distributors See Stronger Profitability.

And 2015 – the latest year for which full data is available – marked the highest ROA performance in that five-year time frame at 8.5 percent.

ROA is the best overall measure of profitability, according to Bates, who says that an ROA of at least 5 percent is "essential for long-term success. For distribution, anything in excess of 10 percent would be considered outstanding."

The industrial sector posted a median ROA of 9.4 percent in 2015, close to the industry ideal of 10 percent, while the construction segment was almost identical to overall distribution performance. The consumer segment had the lowest ROA of 7.7 percent, slightly below industry average but still a strong result.

Bates' annual analysis focuses on five critical profit variables: sales growth, gross margin percentage, operating expense percentage, inventory turnover and days sales outstanding. These factors combine to produce profit for individual firms and individual line of trades.

It also looks at how six components trended in 2015 across three broad distribution industry segments:

  • Industrial includes firms selling largely to the factory floor.
  • Construction represents firms selling a wide range of building materials and supplies.
  • Consumer firms are those selling consumer products or products utilized by retailers of all types.

Read more about how well the industry is performing, including detailed breakout of all five CPVs in the three industry segments, in Distributors See Stronger Profitability.

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