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02/12/2002
Survey shows company profitability falls further
The latest figures published by business analysts Experian confirm that UK company profitability has fallen by almost half over the past three years.
In its latest Corporate Health Check, for the twelve months to June 2002, Experian reports that the average return on capital – a leading measure of profitability – across the industrial economy has fallen to just 7.57%.
Author of the report, Peter Brooker, explained: "UK corporate profitability has fallen for 13 consecutive quarters. Profitability peaked in early 1999 at 14.18%, since when it has fallen by almost half – 47%."
He continued: "There appears to be no sign of any slowdown in the decline. In fact, the rate of decline between the first and second quarters of this year was the fastest seen over this period, with the quarterly rate of decline accelerating in 14 industry sectors during the second quarter."
This latest decline in profitability coincides with a drop in business confidence across almost all parts of the UK. Part of the reason for lower profitability lies in higher costs for businesses, mostly from new legislation rather than wage inflation.
Peter Brooker also suggests that recent weakness in capital investment is also a factor, depressing profitability to such an extent that the long-term viability of many companies is under questions.
Business failures rose by 12.2% in the first ten months of 2002, compared to the same period last year.
He added: "With company failures already rising rapidly, with the expectation that they will rise further in the coming months, and the prospect of consumers reigning in their spending, we have entered a critical time for companies."
(CL)
In its latest Corporate Health Check, for the twelve months to June 2002, Experian reports that the average return on capital – a leading measure of profitability – across the industrial economy has fallen to just 7.57%.
Author of the report, Peter Brooker, explained: "UK corporate profitability has fallen for 13 consecutive quarters. Profitability peaked in early 1999 at 14.18%, since when it has fallen by almost half – 47%."
He continued: "There appears to be no sign of any slowdown in the decline. In fact, the rate of decline between the first and second quarters of this year was the fastest seen over this period, with the quarterly rate of decline accelerating in 14 industry sectors during the second quarter."
This latest decline in profitability coincides with a drop in business confidence across almost all parts of the UK. Part of the reason for lower profitability lies in higher costs for businesses, mostly from new legislation rather than wage inflation.
Peter Brooker also suggests that recent weakness in capital investment is also a factor, depressing profitability to such an extent that the long-term viability of many companies is under questions.
Business failures rose by 12.2% in the first ten months of 2002, compared to the same period last year.
He added: "With company failures already rising rapidly, with the expectation that they will rise further in the coming months, and the prospect of consumers reigning in their spending, we have entered a critical time for companies."
(CL)
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