Low inflation, should it continue once recovery begins, is going to bring with it some uncomfortable revelations. Once the high inflation element is eradicated from company revenues and profits, the real performance of our corporate chiefs will be revealed. Independent consultant Geoff Smith has looked at some performance ratios, taking 300 large British companies as a group, with sobering results. Even allowing for the recession, it is not good news. Turnover for the group is up 23% over three years, roughly in line with inflation, while operating profits are only up 3.5% and profit margins are down 20%. So much for management efficiency. Added to that, profit before tax is down 3.5%. While normally this would be fair enough in a recession, in this instance it is largely due to an 85% rise in interest payments. Similarly, earnings are down just 4.6%, yet cash generated has plunged much further, by over 20%. What is the reason for this? Because our benevolent managers have dished out an extra 52% in dividends. What kind of investment in the future is this? Finally, the value being created by each £ of total assets is down 18%. Smith concludes simply: "The basis on which Britain managed its assets and debts in the 1980s had plainly gone wrong." Indeed, sustainable growth is going to take more than political fancy footwork. British workers and managers alike must begin to innovate, to plan much further ahead and to create extra value - and not simply mindlessly churn out our services and goods.
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