Non-financial corporations - statistics on profits and investment
Data extracted in July 2019.
Planned article update: July 2020.
In 2017, non-financial corporations in the EU-28 had a higher profit share of 40.1 % and an investment rate of 22.9 %.
Business profit shares varied between 72.6 % and 31.0 % across the European Union in 2017.
Business investment rates varied between 28.1 % and 16.9 % across the European Union in 2017.
Gross investment rate of non-financial corporations, 2017
This article focuses on investment and the distribution of profit for non-financial corporations in the European Union (EU) and the euro area; note there are complementary articles that provide information for financial assets and liabilities for non-financial corporations and for income, saving and investment for households.
The non-financial corporations sector comprises all private and public corporate enterprises that produce goods or provide non-financial services to the market.
This article presents Eurostat statistics derived from European sector accounts, which form part of the European system of national and regional accounts (ESA 2010). Data are provided for the EU-28 and the euro area, as well as for individual European Union (EU) Member States, three EFTA countries, Turkey and the United States for the latest reference year available and for developments over the previous 10 years. Most indicators are presented in relation to gross value added, which is beneficial for making spatial comparisons, especially between Member States or non-member countries of different sizes.
Figure 1 shows the breakdown of value added: value added is the value generated by the production process. A part, normally small, of the value added is used to pay taxes on production (less subsidies). The remainder — in fact nearly all — of value added is used to reward the supply of labour and capital, referred to in national accounts terms as the compensation of employees and gross operating surplus, the latter being a measure of profit (before taxes on income and wealth); gross operating surplus may include the remuneration of self-employed persons in countries where the self-employed are included in the non-financial corporations sector.
In this article the profit share is defined as gross operating surplus divided by gross value added. As such, this profitability indicator shows the proportion of the value added by non-financial corporations during the production process which remunerates the supply of capital (or is taxed). Different profit shares in different economies can be explained by a number of factors, such as the relative importance of labour or capital-intensive industries, labour productivity and the level of labour costs. In 2017, profit shares were slightly lower in the EU-28 (40.1%) than in the euro area (40.8 %), with both of these values being above the profit share in the United States (32.4 %; 2016 data).
Among the five largest EU economies, Spain (43.6 %), Italy (42.6 %) and Germany (41.5 %) had profit shares for non-financial corporations above the EU-28 average in 2017, whereas the profit share of the United Kingdom (36.3 %) was below the average as was that of France (31.9 %) — the latter was the lowest share recorded among all EU Member States (other than Luxembourg); note that no data are available for Croatia. In Lithuania, Greece, Romania and Malta, the gross operating surplus of non-financial corporations represented more than 50 % of the gross value added created during the production process, with this share reaching as high as 72.5 % in Ireland mainly due to large foreign-owned multi-national companies that only pay a small proportion of their wages in Ireland; a high profit share was also observed in Turkey (60.5 %).
A time series of profit shares between 2007 and 2017 is provided in Table 1 of the annex at the end of this article.
Figure 2 shows the absolute changes in profit shares for non-financial corporations between 2007 and 2017. This time span starts just before the onset of global financial and economic crisis (and therefore was close to a peak in the business cycle in most EU Member States) and runs until the latest year for which data are available.
In the EU-28 and the euro area, profit shares of non-financial corporations were close to a single percentage point lower in 2017 than they had been in 2007, down 1.0 points in the EU-28 and 1.4 points in the euro area. The profit shares reported for the United States at the beginning and end of this period were also similar, 1.1 points higher in 2016 compared with 2007.
Amongst the five largest economies of the EU, profit shares for non-financial corporations increased substantially between 2007 and 2017 in Spain (up 5.9 points) and rose by 1.0 points in the United Kingdom, while they fell elsewhere, moderately so in France (down 1.5 points) and more strongly in Italy (down 2.6 points) and Germany (down 5.1 points). Across all EU Member States, the largest rises in profit shares between 2007 and 2017 were observed in Ireland (up 20.3 points) and Malta (up 8.0 points), while the largest falls were reported for Luxembourg (down 7.2 points) and Slovakia (down 7.9 points). Among the two EFTA countries for which data are available, there was also a relatively large decline in the profit share for non-financial corporations in Norway (down 7.7 points).
Distribution of gross operating surplus
The gross operating surplus of non-financial corporations is mainly used to pay taxes on income and wealth and to remunerate capital, for example in the form of interest or dividends paid to shareholders. In addition, non-financial corporations also receive interest and other property income from their financial investments, for example also in the form of dividends or reinvested earnings. After accounting for these payments and income as well as other miscellaneous current transfers, the remainder of the gross operating surplus is available as the saving of non-financial corporations, to be used for example for investment or other capital transactions or to be lent.
Figure 3 shows non-financial corporations’ gross operating surplus, how it is distributed, and the resulting net lending (if positive) or net borrowing (if negative). Total net distributions (taxes, interest, other property income/expenditure, other current transactions and capital transactions) correspond to the full bar below the horizontal axis, except for a few cases in 2017, most notably Luxembourg, Romania, Poland, Hungary and Finland, where one or more components of net distribution were positive. In 2017, total net distributions represented similar shares of value added in the EU-28 (-38.7 %) and the euro area (-38.0 %), but were somewhat lower in the United States (-32.6 %; 2016 data).
Among the EU Member States, total net distributions by non-financial corporations were highest in 2017 in Ireland (-71.5 % of value added) and Cyprus (-67.1 %). The lowest total net distributions relative to value added among the Member States were reported for Luxembourg (-9.3 %), Slovenia (-29.3 %), the Netherlands (-30.4 %) and France (-30.7 %); these were the only Member States where this ratio was smaller than one third of value added. Among the non-member countries shown in Figure 3, a particularly high ratio of total net distributions to value added was observed in Turkey (-73.6 %), while a low relatively ratio was recorded for Switzerland (-32.3 %).
Leaving aside capital transactions (see later), looking at the individual types of current distributions, the largest share for non-financial corporations in 2017 was generally for net property income. In the EU-28 this was equivalent to -11.3 % of value added and in the euro area it was -10.5 %, thereby in both cases accounting for approximately two thirds of all net current distributions; Table 4 in the annex at the end of this article provides more detailed information. In the United States the ratio of net property income to value added was -10.8 % which was almost three quarters of all net current distributions (2016 data).
In the EU-28, the vast majority of net property income other than interest in 2017 was distributed income of corporations: this heading accounted for 94.6 % of the payments and 89.7 % of the receipts of all property income other than interest. By contrast, reinvested earnings on direct foreign investment made up 4.0 % of payments and 7.3 % of the receipts, while property income attributed to insurance policy holders and rents each made up at most 1.4 % of payments and at most 2.8 % of receipts of property income other than interest. In the United States (2016 data), distributed income of corporations accounted for a higher share of both payments (97.8 %) and receipts (100 %) of property income other than interest. The remaining component of net property income is net interest. Net interest was of a similar size in the EU-28 and the euro area in 2017, equivalent to -0.5 % of value added of non-financial corporations respectively. Net interest made a larger contribution to total net current distributions in the United States, equivalent to -3.2 % of value added (2016 data). Among the EU Member States, Latvia (1.4 % of value added), Slovenia (1.3 %), Germany (0.4 %) and Sweden (0.2 %) recorded positive values for net interest, meaning that their non-financial corporations received more interest income than they paid in interest. Elsewhere in the EU this ratio was generally smaller than -2.3 % of value added, with larger negative ratios of net interest relative to value added in Ireland (-3.9 %), Luxembourg (-5.1 %) and most notably in Cyprus (-12.1 %). Relatively large negative ratios were also observed in Norway (-3.2 %) and Turkey (-6.1 %).
The ratio of net property income other than interest to value added was particularly large in Ireland (-22.8 %), Lithuania (-22.6 %) and Czechia (-17.9 %) among the EU Member States — this was also the case in Turkey (-31.3 %) — while in all other Member States and non-member countries in Table 4 of the annex it was smaller than -20.0 %. Luxembourg was an exception as it reported a positive value for this indicator, with net property income other than interest equivalent to 25.9 % of value added in 2017, thereby contributing positively to net lending.
Taxes on income and wealth were equivalent to -4.2 % of non-financial corporations’ value added in both the EU-28 and the euro area in 2017, while they were somewhat lower (-2.9 %; 2016 data) in the United States. In the EU-28 and the euro area such taxes were therefore the second largest component on net current distributions.
Four EU Member States — Denmark, Greece, Slovenia and France — as well as Switzerland reported that taxes on income and wealth accounted for a larger share of net current distributions than property income other than interest. Cyprus and Greece recorded the largest ratios of taxes on income and wealth to value added among all of the Member States, reaching -12.5 % in Cyprus and -11.3 % in Greece. As well as being the case in the United States as noted above, the ratio of taxes on income and wealth to value added was smaller than -3.0 % of value added in the three Baltic Member States.
Investment is the largest part of capital transactions. The investment rate for non-financial corporations presented in Figures 4 to 6 shows investments in fixed assets (mainly machinery and buildings) as a percentage of value added in the production process. In 2017, the investment rate was higher in the EU-28 (22.9 %) and euro area (22.8 %) than in the United States (18.0 %; 2016 data).
Among the five largest EU economies, investment rates for non-financial corporations in 2017 were above the EU-28 average in Spain (27.5 %) and France (23.5 %), while they were below average in Italy (21.3 %), Germany (19.9 %) and the United Kingdom (17.9 %), the latter being the second lowest gross investment rate among the EU Member States, the lowest was in Greece (16.9 %). The disparity of investment rates between different economies can be partly explained by structural differences, for example the relative importance of capital-intensive activities. Three Member States reported higher investment rates than that observed for Spain, with rates peaking in Sweden (27.6 %), Slovakia (27.7 %) and Czechia (28.1 %).
Investment rates between 2007 and 2017
Although annual investments may be very volatile for individual enterprises, cyclical trends can be observed nationally. Figure 5 shows the investment rates of the five largest EU economies and the United States together with the EU-28 and euro area averages.
The impact of the global financial and economic crisis on the investment rates of non-financial corporations is clearly visible, with some of the economies recording a fall already in 2008 and all recording lower rates in 2009 than in 2008. The United States and the EU-28 continued to report falling investment rates in 2010, whereas in Germany (no change), the United Kingdom (up 0.1 points) and the euro area (0.2 points) rates had stabilised, while they increased in Spain, France and Italy.
In 2011, all of the economies shown in Figure 5 reported increases in the investment rate; thereafter, developments were more varied. In Spain, investment rates increased most strongly between 2011 and 2017, falling only slightly in 2015. The United States and the United Kingdom reported increasing rates between 2011 and 2014 or 2015 after which they dipped lower. France’s investment rate for non-financial corporations followed a similar development to that for the EU-28 and the euro area, with rates relatively stable between 2011 and 2015 followed by a more notable increase in 2016 and 2017. In Germany and Italy, the investment rate returned to a downward development, falling in 2012 and 2013 before recovering somewhat in 2014 or 2015 and then stabilising in Germany, while growing in Italy.
Among all of the EU Member States (see Figure 6; no data for Croatia or Malta), Cyprus recorded the most substantial increase in its investment rate (up 8.1 points from 19.1 % in 2007 to 27.2 % in 2017). The only other Member States to report higher investment rates in 2017 than in 2007 were Ireland, Luxembourg, Belgium, France, Austria and Sweden. Seven Member States reported falls of at least 10.0 points between 2007 and 2017: the three Baltic Member States, Slovakia, Slovenia, Romania and Bulgaria.
Investment and fixed capital consumption between 2007 and 2017
While gross fixed capital formation reflects an increase in fixed assets, the consumption of fixed capital reflects the decline in the value of fixed assets. Fixed assets decline in value due to normal wear and tear, foreseeable ageing (obsolescence) and a normal rate of accidental damage. Unforeseen obsolescence, major catastrophes and the depletion of natural resources, however, are not included.
Although the difference between the investment rate and ratio of the consumption of fixed capital to gross value added changed over time, in the EU-28 and the United States the investment rate exceeded the ratio of the consumption of fixed capital to gross value throughout the period observed in Figure 7, albeit it with a narrower gap during the global crisis.
Time series for these two indicators are provided for the euro area, the EU Member States and EFTA countries in Tables 2 and 3 of the annex at the end of this article.
Financing investment: net lending and borrowing
Non-financial corporations’ savings and net borrowing (or lending) are used to finance gross capital formation, other capital transfers and acquisitions less disposals of non-financial non-produced assets. Gross capital formation includes gross fixed capital formation (referred to elsewhere in this article as investment), changes in inventories, and acquisitions less disposals of valuables. Non-financial non-produced assets concern, for example, land, mineral reserves or radio spectra.
The difference between savings and all capital transactions is called net lending or net borrowing, depending on whether it is positive or negative. If non-financial corporations are net lenders, it means that they have an excess of savings over investment and other capital transactions that they can lend to other sectors of the national economy or to non-residents. Conversely, they are net borrowers when they need to borrow money from other sectors to supplement their savings in order to finance their investment and other capital transactions.
In 2017, non-financial corporations in the EU-28 and the euro area were net lenders, with their net lending valued at 0.7 % of value added in the EU-28 and 2.3 % in the euro area. In the United States the situation was even more balanced, as non-financial corporations’ net borrowing was equivalent to 0.5 % of value added in 2016 (see Figure 3).
Amongst the largest EU economies, non-financial corporations in Spain (6.0 % of value added), Germany (4.5 %) and Italy (2.4 %) were all net lenders in 2017, whereas non-financial corporations in the United Kingdom (-0.6 %) and France (-0.7 %) were net borrowers. The highest ratios of net lending to value added among the EU Member States (no data for Croatia or Malta) were recorded in Luxembourg (20.2 %), Romania (19.5 %) and Greece (10.6 %), while a further 15 Member States reported net lending that was less than 10.0 % of value added. Net borrowing was smaller than 10.0 % of value added in seven of the eight other Member States, reaching 26.0 % of value added in Cyprus. In Turkey, net borrowing by non-financial corporations was equivalent to 14.8 % of value added in 2017.
Non-financial corporations in the EU-28 and the euro area moved from being net borrowers during the period from 2007 and 2008, to being net lenders almost every year since 2009, the only exception being 2011 and 2012 when non-financial corporations in the euro area borrowed a small amount, equivalent to 1.0 % and 0.1 % of value added. In 2017, net lending in the euro area was equivalent to 2.3 % of value added, whereas in 2007 net borrowing had been equivalent to 4.4 % of value added (see Figure 8). In the early years of the period studied, non-financial corporations in the United States reported a similar development to that of their counterparts in the EU-28, moving from net borrowing in 2007 and 2008 to net lending from 2009 onwards. However, by 2014 non-financial corporations in the United States were again net borrowers and remained so until 2016.
The developments for non-financial corporations’ net lending/borrowing between 2007 and 2017 were diverse among the five largest economies of the EU. In France, non-financial corporations remained net borrowers throughout most this period (aside from during the crisis), while the reverse was true to a large extent in Germany, with a relatively small level of net borrowing recorded in 2008. By contrast, non-financial corporations in Spain and Italy moved from being net borrowers in 2007 to net lenders in 2017. This change was most notable in Spain, moving from net borrowing equivalent to 15.5 % of value added in 2007 to net lending of 6.0 % in 2017.
Time series for net lending/borrowing are provided for all EU Member States and EFTA countries in Table 5 of the annex at the end of this article.
Source data for tables and graphs
The compilation of sector accounts follows the European system of accounts (ESA 2010). It provides the basis for all of the data for the EU Member States, EFTA and enlargement countries, as collected by the European Central Bank (ECB) and Eurostat. Together they publish integrated non-financial and financial accounts, including financial balance sheets, for the euro area; Eurostat also publishes the non-financial accounts of the EU.
The non-financial accounts
Non-financial accounts provide a systematic description of the different stages of economic process: production, generation and distribution, use and accumulation of income. Each of the accounts ends with a balancing item: value added, operating surplus, primary income, disposable income, saving. In case of non-financial corporations some of these can be seen as profit measures.
The data presented in this article do not take account of profits/losses caused by changes in the price levels of assets or by extraordinary events (such as catastrophic losses). Profit measures may be calculated either gross or net of depreciation (called consumption of fixed capital in national accounts): in this article all indicators are presented gross of the consumption of fixed capital.
The non-financial corporations sector
Institutional sectors within national accounts bring together economic units with broadly similar characteristics and behaviour. The non-financial corporations sector is one of five sectors — along with financial corporations, general government, households and non-profit institutions serving households — that together make up the domestic economy.
The non-financial corporations sector consists of institutional units which are independent legal entities and market producers, and whose principal activity is the production of goods and non-financial services. It may be divided into three subsectors covering: public non-financial corporations; national private non-financial corporations; foreign controlled non-financial corporations.
In general, sole proprietorships and most partnerships that do not have an independent legal status are considered to be part of the household sector, rather than corporations (financial or non-financial). However, there are sometimes practical difficulties in delineating ‘quasi-corporations’ (unincorporated businesses with the characteristics of companies) between corporations on one hand and the household sector on the other, which may influence the scope and comparability of the data presented as well as the internal consistency of the full set of accounts.
The profit share of non-financial corporations is defined as the gross operating surplus divided by gross value added. This profitability indicator shows the share of the value added created during the production process that is used to remunerate capital. It is the complement of the remuneration of labour (known in national accounts as compensation of employees) which accounts for most of the remainder of value added, the residual amount relating to taxes less subsidies on production and imports.
The gross investment rate of non-financial corporations is defined as gross fixed capital formation divided by gross value added. This ratio relates the investment in fixed assets (such as buildings, machinery, software, major improvements to fixed assets) to the value added created during the production process.
Non-financial sector accounts form part of the national accounting framework, and are compiled in the EU in accordance with the European system of national and regional accounts (ESA 2010). They are an indispensable tool for analysing developments concerning production, the distribution of income, savings and investment by various institutional sectors, including non-financial corporations.
Issues relating to the non-financial corporations sector include measures of profit and investment as well as the overall level of net lending or borrowing.
Since the beginning of the economic and monetary union (EMU) in 1999, the ECB has been one of the main users of national accounts. A large number of monetary and financial indicators are evaluated in relation to other relevant data that allow the combination of monetary, financial and economic analyses, for example, through key national accounts aggregates and sector accounts. In this way monetary and financial indicators can be analysed within the context of the rest of the economy.
The investment rate for the total economy and by institutional sector is a key indicator for economic analysis and European policymaking, in particular in the context of the European Commission’s Investment Plan for Europe and in the context of monitoring EU Member States’ economies under the European Semester (EU country-specific recommendations).
The investment rate is also part of the Principal European Economic Indicators (PEEIs).
Financial institutions’ interest in national accounts may range from a broad analysis of the economy to specific information concerning savings, investment or debt among households, non-financial corporations or other institutional sectors.
- Key indicators (nasa_10_ki)
- Non-financial transactions (nasa_10_nf_tr)