Trend in the financial structure and results of firms in 2007

Wirtschaftsrevue IV 2008

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Every year, in the December issue of the Economic Review, the National Bank describes the developments taking place in the annual accounts of non-financial corporations. This year’s article comprises three sections. Section 1 briefly describes the methodology and sample used. Section 2 presents an extrapolation of the main profit and loss account items for 2007. Finally, section 3 assesses the financial situation of companies, particularly their level of profitability, solvency and liquidity.  It must be stressed that this analysis concerns the year 2007 only, and therefore does not permit any conclusions regarding developments in 2008, particularly the consequences of the current financial crisis.

In line with what occurred in the previous year, activity growth in Belgium was again robust in 2007, at 2.8 p.c. compared to 2.9 p.c. in 2006. Despite the slowdown in the United States, external demand remained steady, while domestic demand for investment and consumption gathered strength. Overall, activity thus maintained a vigorous rate of expansion for almost two years. However, the second half of 2007 brought the start of a slowdown. Though this subsequently became much more marked, it still remained relatively moderate in 2007, in the light of the accompanying developments in the external environment (financial market turmoil, rapid appreciation of the euro and rising price of commodities).

In that context, the value added of non-financial corporations maintained the upward trend of the preceding four years, growing by 4.8 p.c. at current prices in 2007. Since total operating expenses (and more particularly staff costs and depreciation) once again grew more slowly than value added, the net operating result increased for the sixth consecutive year. Between 2001 and 2007 it more than doubled, rising steadily from 17 to over 35 billion euro. As pointed out in previous editions of this article, that growth is exceptional in historical terms, in both its duration and its scale. As examination of the operating margin confirms, it indicates an unprecedented ability on the part of firms to generate income for their shareholders.

Corporate financial health also continued to improve in 2007. Although the globalised ratios of large firms declined, that is attributable to just one or two isolated instances. Conversely, the trend in the median ratios reveals that the majority of firms, whatever their size, achieved higher profitability, solvency and liquidity. It was only the cost of interest charges on financial debts that increased in 2007, following successive increases in the Eurosystem key rates and, from the summer, the financial market tension due to the subprime crisis.