Profitability Measuring profitability of companies in the UK


What is profitability?

Profitability compares the profits made by companies with the value of the buildings, plant, machinery and vehicles held as capital assets by those companies.

Expressed as a "rate of return" on assets held, these can be compared between sectors to judge whether the returns on investment are worthwhile.

National Statistics produces two different rates of return, "Gross" and "Net". The Gross measure makes no allowance for the depreciation (called "Capital Consumption") in value of the assets (called "Capital Stock") over the item's working life, and also does not subtract this depreciation from profits. The Net measure subtracts depreciation from profits and also subtracts the accumulated value of depreciation from the assets estimates

What are UK non-financial corporations?

UK non-financial corporations comprise: Oil and gas extraction companies; Manufacturing companies; Service sector companies; Other companies.

Estimates are published for the total and for the first three components, no estimates of profitability are published for the "other companies" sector.

How are the profits data calculated?

The Inland Revenue collects annual information on company profits as a part of the tax collection process. For the ONS to produce more recent quarterly profits data, it conducts an inquiry, which asks companies what their profits have been in the latest quarter. The results from this inquiry are used to provide estimates of the change in profits from one quarter to the next; these changes are then applied to the latest data from the Inland Revenue to give up-to-date estimates of profits.

How is the data for Capital Assets and depreciation calculated?

Estimates of investment are added together for all assets which will still be in use (based on estimates of the asset's life length) to give "Gross Capital Stock". Depreciation is calculated by assuming that the asset loses an equal amount of value each year and is worth zero at the end of its life. "Net Capital Stock" is calculated from Gross Capital Stock by removing depreciation.