Trend in the financial structure and results of firms in 2003

Each year, in the 4th quarter’s Economic Review, the Bank examines the situation regarding the annual accounts of Belgian non-financial corporations. By that time, the Central Balance Sheet Office has already collected a representative number of annual accounts for the preceding year. The article is in three parts. The first part describes the methodology used and the sample. The second part studies the main developments in the profit account. Finally, the third part contains a financial analysis of Belgian companies; this analysis is completed by the interpretation of the results of the default model developed by the Bank. The main findings of the study can be summarized as follows. In 2003, the total value added created by Belgian non-financial corporations increased by 3.4 p.c., which is the best result since 2000. At the same time, the operating costs (mainly personnel costs and depreciation) almost stagnated. So, unlike in previous years, value added growth far exceeded the rise in operating costs. As a result, the net operating profit increased by 23 p.c. After taking into account the other elements of the results, and particularly the financial result, which once again was largely positive, non-financial corporations made a net profit after tax of 24 billion euros, representing growth of 96 p.c. If this is confirmed by the final figures, this doubling of the growth rate after two years of steep decline will constitute a historical record. As far as the financial situation of the companies is concerned, it improved overall in 2003, after having clearly suffered from the weak economic situation in 2001 and 2002. In particular, the return on equity, which had been severely eroded in large companies and actually collapsed in SMEs, recovered strongly in 2003. Finally, a default model developed by the Bank has made it possible to evaluate the financial risks run by Belgian companies. After having reached a peak in 2001, financial risks declined in 2002. This trend continued in 2003, especially in large companies. Yet, according to the model, a large number of companies are distressed : the proportion of companies experiencing problems amounts to 17 p.c. for large companies and 20.5 p.c. for SME’s. These distressed companies employ 217,000 workers.