We might only be a little over halfway through the year, but that’s not stopping us from seeing which businesses are dominating in profits so far. You may find some of the following entries to be a bit surprising at first.
But in the context of coming fresh off of a pandemic, they make perfect sense. Much has changed compared to 2020, and understandably so, as COVID-19 radically altered the economic landscape.
With that in mind, it’ll be interesting to see how this list changes by 2022 and the years to follow. So with that, let’s get down to business — profitable business.
Most Profitable Businesses
To begin our list of the most profitable businesses in 2021, we start with the top contender. The other entries that follow aren’t even in the same league when you look at the numbers.
1. Retirement & Pension Plans
This industry consists of private and public pension funds, which provide retirement savings and income benefits for the sponsor’s employees or members.
What’s more, this industry only includes defined benefit plans and does not include defined contribution plans.
Income from retirement and pension plans refers to the total amount of donations plus investment income, while the institution refers to the number of funds.
After the retirement and pension plan industry’s income declined by 5.8% in 2020, it’s thought to see a growth of 5.2% in 2021.
What’s more, after the first loss of asset value at the beginning of the COVID-19 pandemic, asset value recovered and even increased in value over the previous year, thereby increasing investment income.
According to data from the Federal Reserve, as of the third quarter of 2020, the total financial assets of pension funds went up by 4.5% compared with the same period in 2019.
Affected by the decline in employee and individual contributions, industry revenue is expected to face downward pressure still.
Budgetary pressure will continue to exert downward pressure on sponsors’ donations, and return on investment (ROI) is essential to maintain or promote the recovery of funding levels.
Low-interest rates and increased production capacity will help the economy get out of recession. However, inflation concerns will likely create economic uncertainty in the near future.
Profits and Bottom Line: To date this year, retirement and pension plans have amassed a staggering $660 billion. Based on the information above, it’s clear that this industry benefited from the pandemic rather than suffer from it.
What’s more — and as you will see in the following entries — retirements and pension plans edge out the runner-up by an astonishing $500 billion!
2. Commercial Banking
For most of the five years leading up to 2021, the commercial banking industry benefited from improved business confidence and rising interest rates.
Moreover, most commercial banks’ income comes from the spread between customer deposits and loans, such as small business loans.
Banks accept deposits and deposit them into savings accounts and things like certificates of deposit, where funds cannot be withdrawn for a certain time.
The banks then turn around and use this money to pay interest to depositors and lend these deposits at higher interest rates, such as personal loans, mortgages, car loans, or small business loans.
The decline in loan volume and the decline in interest rates led to an overall decline in interest income. As a result, it hindered the growth of industry revenue in 2020.
In light of COVID-19, consumers are now more conservative financially, so they are expected to reduce their demand for credit card loans. Due to reduced economic uncertainty, profits should increase further in 2021.
Profits and Bottom Line: Commercial banking is another business that spiked due to the pandemic, with profits of $170 billion thus far.
3. Life Insurance/Annuities
Life insurance and annuities businesses had the opposite effect in 2020, as the pandemic hurt the industry. This was mainly due to slowing economic activity and reduced consumer spending.
However, increased uncertainty plays a big role here, as well. In essence, the slowdown in consumer spending due to social distancing triggers the typical “reverse multiplier” effect.
Therefore, the coronavirus can be seen as an “income statement” recession rather than a “balance sheet” recession. Look no further than to the Great Recession of 2008 and 2009 for a perfect example of this.
In addition, an important difference in the coronavirus pandemic is that the Fed provides an immediate and adequate supply of liquidity, which reduces bond income but helps maintain asset prices. As such, certain fees act as income for some operators.
What’s more, despite the decline in demand for other product categories, due to the Coronavirus pandemic, the mortality rate of operators in the short- and medium-term beneficiary industries is higher, so the demand for term life insurance is higher.
Profits and Bottom Line: Last year might not have been kind to life insurance and annuities businesses. But 2021 is already looking promising, boasting $153 billion so far.
4. Software Publishing
The software publishing industry mainly engages in disseminating software licenses to customers to obtain the right to execute software on their computers and other devices.
Software publishers usually develop and distribute their own software and supporting materials and services.
The revenue growth of the software publishing industry is expected to increase by 12.6% in 2020, but revenue growth in 2021 is expected to be much lower.
The reduction in consumer and business demand due to COVID-19 has less impact on industry operators than expected. The demand in various markets of the industry is expected to increase in 2021.
Furthermore, specific market segments are expected to see demand growth greater than other market segments, thereby affecting the segmentation of major markets.
Profits and Bottom Line: Projected growth may indeed drop on the whole in 2021, but current profits of $115 billion aren’t anything to dismiss.
5. Medical and Health Insurance
During the pandemic, the health and medical insurance industry got a larger share of its revenue from the public sector. And in the five years leading to 2026, the industry is expected to benefit from improved economic conditions and regulatory changes.
Looking back at the Great Recession, the income of the health and medical insurance industries increased in both 2008 and 2009. However, private market demand continues to decline as unemployment rates rise and more of the workforce loses jobs.
The increase in the number of people covered by Medicaid is likely to stimulate growth in this business.
Profits and Bottom Line: One would think that this industry would have higher profits given the state of the nation — nay, the world. But as it stands, it’ll have to settle with $104 billion in profits.
6. Trusts and Estates
In the five years leading up to 2026, the expected income of this industry is likely to decline. This is because of the decline in the yield of Treasury bonds during the current period.
Trust, agency and estate accounts are legal entities that serve as tools for holding and distributing assets for specific purposes.
The main assets invested in the entity and wholly owned by it are provided by the grantor and managed by the trustee for contractual purposes.
Due to stock market volatility and falling yields, the trust and real estate industries will decline in 2020.
As concerns about the coronavirus diminish in the next five years heading into 2026 — and as investor uncertainty declines — industry operators should see increased demand for trusts and estates.
Profits and Bottom Line: Trusts and Estates is our first entry to dip below the $100 billion mark, with $86 billion in profits midway through 2021.
7. Collateralized Debt and Real Estate Loans
This industry consists of non-depository institutions specializing in primary and secondary market loans. The aftermath of the subprime mortgage crisis has disappeared within the five years leading up to 2021.
Commercial and residential construction companies have taken advantage of historically low interest rates to achieve steady revenue growth.
As interest rates rise, we expect income growth in these industries to increase in 2021. And with declining interest rates, the demand for services in the industry also declines.
This leads to unstable profits, and we expect demand in the primary market to be on the decline.
Profits and Bottom Line: Although the business of collateralized debt and real estate loans is still making money, it isn’t as profitable as it used to be. At present, this industry has a profit of $75 billion in 2021.
Do you think these businesses will stay the same or change in the coming months and years? Will businesses focusing on retirement and pension plans still be at the top of the food chain? One thing’s for certain; it will be interesting to watch it all unfold.
Income Statement – Definition, Explanation, and Examples