Company profitability and finance

Quarterly Bulletin 1989 Q2
Published on 01 June 1989

This article reviews the performance of UK industrial and commercial companies (ICCs) during 1988.

Among the main points are:

  • The rapid increase in demand in 1988 ensured that the UK corporate sector continued to flourish. Profitability was at its highest level for twenty-five years.
  • Although most manufacturing companies were operating at a relatively high level of output, they were able to respond to the increase in demand. However, the labour market remained tight.

  • The investment performance in 1988 was exceptionally strong, largely owing to the rapidity of output growth in the previous year and the high levels of capacity utilisation.

  • Companies moved into financial deficit, mainly on account of buoyant capital expenditure and rising dividend payments. It is likely that the sector will remain in deficit in 1989.

  • Company liquidity has deteriorated rapidly since the crash; equity issues have been subdued, and there was a substantial outflow of cash from the sector associated with the high level of takeover activity.
  • The combination of strong bank borrowing and the rise in interest rates increased income gearing in the second half of the year. Capital gearing also rose sharply.

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