Company profits slide as recession takes hold

Company profits slide as recession takes hold
Business profits are likely to dip by a third - more than in the early 1990s recession - experts warned after fresh figures underlined companies' declining fortunes.

By Edmund Conway, Economics EditorLast Updated: 6:39AM GMT 15 Jan 2009

The total amount of profits generated has fallen for a second successive quarter in the latest sign of the economy's deterioration.
Corporate profitability dropped in the third quarter of last year, despite a leap in takings from North Sea oil and gas groups as the crude price shot through record highs. Experts warned that the fall in profits only represented the beginning of a long series of declines during the current UK recession, which according to statistics released earlier this week is likely to be more severe than the slump of the early 1990s.
The net rate of return recorded by private non financial corporations dropped to 13.9pc in the third quarter of 2008, according to the Office for National Statistics. The rate is the lowest since early 2007, and is significantly down from the peak of 14.7pc recorded early last year before the full force of the economic crisis hit.
Roger Bootle, founder of Capital Economics and an economic adviser to Deloitte, said he expected profits ultimately to fall by around a third.
"The extreme cyclicality of profits means that in the early 1990s recession, profits fell, in real terms from peak to trough, by around 25pc. The more severe recession in the early 1980s is fast becoming the more relevant precedent. And back then, profits fell by about 37pc in real terms.
"I find it very hard to share in the general optimism that the recession will last for only a year. The economy will contract further in 2010 as well."

http://www.telegraph.co.uk/finance/economics/4240920/Company-profits-slide-as-recession-takes-hold.html