Profitability is falling in every age group: young companies earn five times the margin of old ones

Yesterday's entity.ee analysis showed that the median net margin of the same 76,000 companies fell from 7.1 percent to 3.5 in 2019–2025. A question remained: how much of that is simply companies ageing? Young companies may be more profitable than old ones, and if the same companies age six years, their margin could fall even without any change in the business environment. To test this, we grouped companies by age, meaning the difference between the report year and the year of first registry entry, and compared the median net margin (profit for the year divided by revenue) over the years. Nearly a million company-year reports are included in the analysis.

Age clearly affects profitability. In 2025 the median margin of companies up to two years old was 14.0 percent, for three- to five-year-olds 6.1, for six- to ten-year-olds 4.9, for 11–20-year-olds 4.1 and for companies over 20 years old 2.8 percent. The margin of young companies is thus five times that of the oldest. The same pattern held in 2019: 14.6, 8.4, 6.2, 5.3 and 3.3 percent. The share of loss-making companies also grows with age: 23 percent of companies up to two years old are in the red, 32 percent of six- to ten-year-olds and 11–20-year-olds, and 34 percent of those over 20.

Ageing does not, however, explain the whole decline. In every age group the 2025 margin is lower than in 2019: for three- to five-year-olds it fell from 8.4 percent to 6.1, for six- to ten-year-olds from 6.2 to 4.9, for 11–20-year-olds from 5.3 to 4.1, for those over 20 from 3.3 to 2.8 and for those up to two years old from 14.6 to 14.0. Comparing companies of exactly the same age, five to seven years old, the median was 7.0 percent in 2019 and 5.1 in 2025. For ten- to twelve-year-old companies it fell from 5.4 percent to 4.9. A company of the same age therefore now earns less than it did six years ago.

The age structure of companies has also changed. The share of companies up to five years old has fallen from 43 percent to 38 and the share of those over 20 has risen from 10 percent to 14, so there are more older, lower-margin companies. A rough calculation in which we weighted the age groups' medians by their shares gives a market-wide margin of 8.1 percent in 2019 and 6.4 percent in 2025. Of that decline of 1.7 percentage points, about a quarter (0.5 points) comes from the change in age structure and the rest from companies of the same age earning less. This is a simplified estimate, because the average of group medians is not the same as the market-wide median, but it shows the direction.

The same picture emerges when following groups of companies founded in the same years over time. For companies founded in 2017–2018 that filed a report in all seven years (11,174 companies), the median net margin fell from 12.5 percent to 4.0. For those founded in 2014–2016 it fell from 8.9 to 4.3, for 2010–2013 from 6.6 to 3.7 and for 2005–2009 from 5.7 to 3.4. The younger the group, the bigger the fall, but by 2025 all groups have come quite close to each other, at 3.4–4.3 percent. The share of loss-making companies in these groups was 19–25 percent in 2019 and 32–33 percent in 2025.

What explains the high margin of young companies cannot be read from the reports. It is possible that founders do not pay themselves a salary in the first years, that the first report year is shorter or costs are still growing, and that young companies that never got going have disappeared from the market. These are guesses that this data set cannot test. What the data does show is that the share of loss-making companies has grown in every age group, even among those up to two years old (from 20 percent to 23), and most among three- to five-year-olds (from 25 percent to 32).

Limitations of the analysis: a company's age is calculated from the year of its first registry entry, which may not coincide with the actual start of activity or, for reorganised companies, with a change of legal form. Companies that have closed are not in the analysis, and the first and last report years may be shorter than a full year. The analysis covers only non-consolidated reports of private limited companies, public limited companies, limited partnerships and general partnerships with positive revenue available in structured form. Not all 2025 reports have been filed yet (about 92 percent of the 2024 volume). The results describe associations, not causes.