Aggregate US Corporate Financial Performance (1996 – 2007)
The U.S. aggregate corporate financial performance looks at the 5.5 million plus active corporations (C and S corporations) that the IRS keeps track of for business statistics on the IRS website. The years covered are from 1996 to 2007. The financial data is primarily accrual basis. Less than 20% of the revenue weighted numbers of companies are cash basis. These 5.5 million plus companies include the 17,000 publicly traded companies.
Annual aggregate revenue growth over the 12 year period is 5.75% annually. Around 28% of the total aggregate revenues are privately produced and the rest is produced by publicly traded companies. The average overall annual gross profit is around 45%. In 2001 and 2002 both incremental annual revenues and gross profit collapsed followed by a strong multi-year upsurge. The same incremental revenue and gross profit declines began again in 2005 .
Aggregate operating expenses as a percent of revenues approached almost 40% in 2002 and declined year by year to under 33% by 2007. Net operating income as a percentage of revenues dropped to a low of 7% – rebounding over the next several years to over 13% to revenues.
Cash flow before financing peaked out in 2005 at 12.89% to revenues and the dollar amount also peaked that year. From here it began a decline that bottomed out in 2009′s Great Recession. This occurred even though the EBITDA dollar amount kept increasing each year during the same period. EBITDA means earnings before interest expense, taxes, depreciation, and amortization but it should mean “every bad idea that draws attention.” Using EBITDA is not a good idea! EBITDA is a highly misleading placeholder for a company’s cash flow.
The aggregate companies are aggressive negative net trade cycle operators – good during expansion but for many of them quite dangerous during business downturns or recessions. The aggregate businesses also hold too way too much cash on average and invest too much in other assets that are not always necessary to the operation of the businesses.
Further the average return on assets for all the businesses is a miserable 3.5% annually throughout the whole time period. These businesses could not even hurdle their low aggregate average weighted cost of capital of 8.4% annually which meant that they generally were wealth destroyer in aggregate and over most of the time. Yes, the leveraged return on equity was around 48% but one needs to keep in mind that the aggregate is also substantially over-borrowed from a conservative banking point of reference.