Non-financial corporations - statistics on profits and investment


Data extracted in March 2021.

Planned article update: March 2022.

Highlights

In 2019, non-financial corporations in the EU had a profit share of 40.3 % and an investment rate of 25.2 %.

In 2019, profit shares of non-financial corporations varied among the EU Member States from 33.2 % in France to 73.4 % in Ireland.

In 2019, the investment rate of non-financial corporations varied among the EU Member States from less than 20 % in Luxembourg (2018 data), Cyprus, Greece and the Netherlands to 31.5 % in Hungary and 56.5 % in Ireland.

Figure 4: Gross investment rate of non-financial corporations, 2019
(% ratio of gross fixed capital formation to gross value added)
Source: Eurostat (nasa_10_ki) and (nasa_10_nf_tr)

This article focuses on investment and the distribution of profit for non-financial corporations in the European Union (EU) and the euro area (EA); 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 and the euro area, as well as for individual EU Member States, some of the EFTA countries, Turkey, the United Kingdom and the United States for the latest reference year available and for developments over the previous 10 years.

The time period covered by the analyses in this article is 2009 to 2019. When looking at developments during this period, it should be remembered that the impact of the financial and economic crisis could already be observed in the data for 2008 for some of the countries covered by this article and that nearly all economies contracted in 2009. As such, the starting point for the time series that are presented is a year with a relatively low level of economic activity. Equally, the time series ends before the COVID-19 pandemic and therefore do not show the impacts of the related economic and social crisis.

Most indicators are presented in relation to gross value added, which is beneficial for making spatial comparisons, especially between EU Member States or non-member countries of different sizes.

Full article

Profit shares: distribution of value added

Figure 1 shows the breakdown of value added: value added is the value generated by the production process. A part, normally small, of 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 2019, profit shares were slightly higher in the EU (40.3 %) than in the euro area (39.8 %), with both of these values being above the profit share in the United States (31.6 %; 2018 data).

Figure 1: Analysis of value added of non-financial corporations, 2019
(% share of gross value added)
Source: Eurostat (nasa_10_nf_tr)

Among the four largest EU economies, Spain (43.0 %) and Italy (41.8 %) had profit shares for non-financial corporations above the EU average in 2019, whereas the profit shares of Germany (37.2 %) and France (33.2 %) were below the average — the latter was the lowest share recorded among all EU Member States. In Romania and Malta (2018 data), the gross operating surplus of non-financial corporations represented more than 50 % of the gross value added during the production process, with this share reaching as high as 73.4 % in Ireland, mainly due to large foreign-owned multi-national companies that pay a relatively small proportion of their labour costs in Ireland; a high profit share was also observed in Norway (51.7 %; 2018 data) and Turkey (60.5 %; 2017 data).

Profit shares between 2009 and 2019

Figure 2 shows the absolute changes in profit shares for non-financial corporations between 2009 and 2019. This time span starts at the low point of the global financial and economic crisis (and therefore was a volatile period in the business cycle in most EU Member States) and runs until the latest year for which data are available.

Figure 2: Changes in profit share of non-financial corporations, 2009-2019
(percentage points)
Source: Eurostat (nasa_10_nf_tr)

In the EU and the euro area, profit shares of non-financial corporations were less than a single percentage point higher in 2019 than they had been in 2009, up 0.3 points in the EU and 0.5 points in the euro area. The profit shares reported for the United States at the beginning and end of this period were also similar, 0.2 points higher in 2018 compared with 2009.

Among the four largest economies of the EU, the profit share for non-financial corporations increased moderately between 2009 and 2019 in France (up 2.4 points) and Spain (up 1.5 points), while they fell relatively moderately in Italy (down 1.2 points) and more strongly in Germany (down 3.8 points). Across all EU Member States, the largest rises in profit shares between 2009 and 2019 were observed in Ireland (up 23.7 points) and Malta (up 8.9 points between 2009 and 2018), while the largest falls were reported for Greece (down 13.6 points; note that there is a break in series), Latvia (down 9.4 points) and Romania (down 9.2 points).

A time series of profit shares between 2009 and 2019 is provided in Table 1 of the annex at the end of this article.

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 2019, most notably Luxembourg (2018 data), Austria, Hungary, Finland, Poland and Romania, where other current transactions were positive. In 2019, total net distributions represented a higher percentage of value added in the EU (-41.0 %) than in the United States (-28.1 %; 2018 data).

Figure 3: From gross operating surplus to net lending/borrowing, 2019
(% share of gross value added)
Source: Eurostat (nasa_10_nf_tr)

Among the EU Member States, total net distributions by non-financial corporations were highest in 2019 in Ireland (-106.3 % of value added) and were also -50.0 % or more of value added in Slovakia, Cyprus and Czechia. The lowest total net distributions relative to value added among the Member States were reported for Slovenia (-31.2 %) and the Netherlands (also -31.2 %; 2018 data); 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, particularly high ratios of total net distributions to value added were observed in Turkey (-75.2 %; 2017 data) and Norway (-52.9 %; 2018 data).

Leaving aside capital transactions (see later), looking at the individual types of current distributions, the largest share for non-financial corporations in 2019 was generally for net property income. In the EU this was equivalent to -10.4 % of value added, thereby accounting for close to two thirds of all net current distributions. In the United States the ratio of net property income to value added was -5.5 % which was just over two thirds of all net current distributions (2018 data). Table 4 in the annex at the end of this article provides more detailed information.

In the EU, the vast majority of net property income other than interest in 2019 was distributed income of corporations: this heading accounted for 92.4 % of the payments and 93.3 % of the receipts of all property income other than interest. By contrast, reinvested earnings on direct foreign investment made up 6.1 % of payments and 4.3 % of the receipts, while property income attributed to insurance policy holders and rents each made up at most 1.5 % of payments and at most 2.2 % of receipts of property income other than interest. In the United States (2018 data), distributed income of corporations accounted for a higher share of both payments (97.6 %) and receipts (100.0 %) of property income other than interest. The remaining component of net property income is net interest. In 2019, net interest was equivalent to -0.6 % of value added of non-financial corporations in the EU, while it made a larger contribution to total net current distributions in the United States, equivalent to -3.3 % of value added (2018 data). Among the EU Member States, Slovenia and Latvia (both 1.0 % of value added), Greece (0.8 %), Germany and Sweden (both 0.4 %) recorded positive values for net interest, meaning that their non-financial corporations received more interest income than interest paid. Elsewhere in the EU, this ratio was generally smaller than -1.5 % of value added, with larger negative ratios of net interest relative to value added in Portugal (-2.3 %), Denmark (-2.4 %), Estonia (-3.1 %) and Ireland (-4.1 %), and most notably in Luxembourg (-8.9 %; 2018 data) and Cyprus (-9.2 %). Relatively large negative ratios were also observed in Norway (-2.9 %; 2018 data) and Turkey (-6.1 %; 2017 data).

The ratio of net property income other than interest to value added was particularly large in Ireland (-27.8 %), Lithuania (-21.1 %) and Luxembourg (-18.3 %; 2018 data) among the EU Member States and also in Turkey (-31.3 %; 2017 data).

Taxes on income and wealth were equivalent to -4.2 % of non-financial corporations’ value added in the EU, while they were somewhat lower (-1.5 %; 2018 data) in the United States. In the EU, such taxes were therefore the second largest component of net current distributions.

Three EU Member States — Cyprus, Denmark and France — reported that taxes on income and wealth accounted for a larger share of net current distributions than property income other than interest. Cyprus recorded the largest ratio of taxes on income and wealth to value added among all of the Member States, reaching -11.7 %, followed by Greece (-7.3 %). 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, Hungary and Spain.

Investment rates

Investment is the largest part of capital transactions. The investment rate for non-financial corporations presented in Figures 4 to 7 shows investments in fixed assets (mainly machinery and buildings) as a percentage of value added in the production process. The investment rate was higher in the EU (25.2 %) and the euro area (24.7 %) in 2019 than in the United States (19.9 %) in 2018.

Figure 4: Gross investment rate of non-financial corporations, 2019
(% ratio of gross fixed capital formation to gross value added)
Source: Eurostat (nasa_10_ki) and (nasa_10_nf_tr)

Among the four largest EU economies, the investment rate for non-financial corporations in 2019 was above the EU average in Spain (27.2 %), while this rate was below average in France (24.5 %), Italy (21.6 %) and Germany (21.4 %). Five EU Member States reported lower rates than in Germany, with the lowest values in Greece (17.1 %), Cyprus (16.8 %) and Luxembourg (15.5 %; 2018 data). Six Member States reported higher investment rates than that observed for Spain, with the highest rate in Ireland (56.5 %). The disparity of investment rates between different economies can be partly explained by structural differences, for example the relative importance of capital-intensive activities.

Investment rates between 2009 and 2019

Although annual investments may be very volatile for individual enterprises, cyclical trends can be observed nationally. Figures 5 and 6 show the investment rates of the four largest EU economies, the EU and euro area averages, the United Kingdom and the United States.

Figure 5: Index of gross investment rates of non-financial corporations, 2009-2019
(2009 = 100)
Source: Eurostat (nasa_10_ki) and (nasa_10_nf_tr)
Figure 6: Index of gross investment rates of non-financial corporations in the EU, 2009-2019
(2009 = 100)
Source: Eurostat (nasa_10_ki)

The global financial and economic crisis impacted on the investment rates of non-financial corporations in some economies already in 2008 and in most in 2009. The United Kingdom, the United States and the EU continued to report slight falls for their investment rates in 2010, whereas in the four largest EU Member States this rate increased, as it did in the euro area. In 2011, all of the economies shown in Figures 5 and 6 reported increases in the investment rate, except for the United Kingdom. In 2012 and 2013, developments were more varied, with Germany, France and particularly Italy recording falling rates in both years. 2014 was the first (and only) year in the period shown in which all of the economies recorded an increase in the investment rate. In 2015 and 2016, the investment rate in the United States fell back again, whereas elsewhere it generally continued to recover, as the fall in Spain in 2015 was the only other negative rate in these two years. In a similar vein, in 2017 and 2018 the rates generally increased, with the only falls recorded in the United Kingdom. In 2019, the investment rate fell in Italy and was more or less stable in the United Kingdom, while it grew elsewhere (no data available for the United States).

Between the lowest rates towards the beginning of the time series shown — 2011 in the United Kingdom, 2010 in the EU and the United States, 2009 elsewhere — and the latest year (2019 generally, 2018 for the United States), the largest recovery in the investment rate was in Spain, where the rate increased overall by 44.5 %. Between 2009 and 2019, the investment rate increased 17.4 % in the euro area, while it increased 16.3 % in the EU between 2010 and 2019. Similar increases were recorded in the United States (13.9 % between 2010 and 2018), the United Kingdom (13.9 % between 2011 and 2019) and France (13.5 % between 2009 and 2019). The increase in the investment rate between 2009 and 2019 was more subdued in Germany (8.0 %) and in Italy (5.4 %).

Figure 7 shows the overall change in the investment rate of non-financial corporations between 2009 and 2019. Among all of the EU Member States (no data for Malta), Ireland recorded the most substantial increase in its investment rate (up 34.6 percentage points from 21.9 % in 2009 to 56.5 % in 2019). Spain reported the next highest increase, up 8.4 points. Increases were recorded in 12 other Member States. Bulgaria reported a fall of 15.2 points, from 39.0 % in 2009 to 23.8 % in 2017. The next largest fall was 5.8 points between 2009 and 2019 in Slovenia.

Figure 7: Changes in investment rate of non-financial corporations, 2009-2019
(percentage points)
Source: Eurostat (nasa_10_ki) and (nasa_10_nf_tr)

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 2019, non-financial corporations in the EU and the euro area were net borrowers, with their net borrowing valued at 0.7 % and 0.5 % of value added respectively. In the United Kingdom, non-financial corporations’ net borrowing was equivalent to 2.5 % of value added in 2019, while in the United States, non-financial corporations moved from being net borrowers in 2017 (3.3 % of value added) to net lenders in 2018 (3.5 %); see Figures 8 and 9.

Amongst the largest EU economies, non-financial corporations in Spain (5.2 % of value added), Italy (1.4 %) and Germany (0.2 %) were all net lenders in 2019, whereas non-financial corporations in France were net borrowers (0.6 % of value added). The highest ratio of net lending to value added among the EU Member States (no data for Malta) was recorded in Romania (16.0 %), followed by Lithuania (9.0 %), Poland, the Netherlands (both 8.2 %) and Bulgaria (8.1 %; 2017 data). A further 10 Member States reported net lending of 7.1 % of value added or less. Net borrowing was at most 5.3 % of value added in 8 of the 11 other Member States for which recent data are available, reaching 9.4 % in Cyprus, 12.0 % in Luxembourg (2018 data) and 32.9 % in Ireland. In Turkey, net borrowing by non-financial corporations was equivalent to 14.8 % of value added in 2017.

Non-financial corporations in the EU were net lenders every year from 2009 to 2017, but moved to being net borrowers in 2018 and remained so in 2019. For the euro area, the situation was similar, the main difference being that there was a relatively low level of net borrowing (0.4 % of value added) in 2011. In the early years of the period studied, non-financial corporations in the United States reported a similar situation to that of their counterparts in the EU, recording net lending from 2009 to 2013. However, in 2014 non-financial corporations in the United States were net borrowers and remained so until 2018 when they became net lenders again. The developments in the United Kingdom were initially similar to those in the EU, although British non-financial corporations became net borrowers already in 2013 and have remained so since then.

The developments for non-financial corporations’ net lending/borrowing between 2009 and 2019 were diverse among the four largest economies of the EU. In France, non-financial corporations remained net borrowers throughout most of this period (aside from 2009, 2010 and 2016). The reverse was true to a large extent in Italy, with net borrowing recorded only in 2010, 2011 and 2015. Non-financial corporations in Germany were above the EU average every year, and they were net lenders every year except in 2018 with slight net borrowing (0.2 % of value added). Spain recorded a similar development to those in Germany, but with an unbroken series of higher net lending.

Figure 8: Net lending/borrowing of non-financial corporations, 2009-2019
(% ratio of net lending/borrowing to gross value added)
Source: Eurostat (nasa_10_nf_tr)
Figure 9: Net lending/borrowing of non-financial corporations in the EU, 2009-2019
(% ratio of net lending/borrowing to gross value added)
Source: Eurostat (nasa_10_nf_tr)

Time series for net lending/borrowing are provided for all EU Member States, EFTA countries, Turkey, the United Kingdom and the United States in Table 5 of the annex (see below).

Data sources

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 countries, enlargement countries and the United Kingdom, 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.

Indicator definitions

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.

Context

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 monitoring EU Member States’ economies under the European Semester, for example (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.

Like all sectors of the economy, non-financial corporations have been directly and indirectly impacted by the COVID-19 pandemic and its related restrictions. The multiannual financial framework covering the period 2021-2027 adopted in December 2020 is being supported by a supplementary budget called the European Recovery Instrument (also known as Next Generation EU). This mainly concerns the Recovery and Resilience Facility, a small majority of which will be disbursed as loans and the rest as grants. This facility will support reforms and investments undertaken by EU Member States. The aim is to mitigate the economic and social impact of the COVID-19 pandemic and make EU economies and societies more sustainable, resilient and better prepared for the challenges and opportunities of the green and digital transitions.

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Non-financial transactions (nasa_10_nf_tr)