Raising Profits without Raising Sales - What's the Bottom Line?

Headline

A real increase in productivity would also mean in increase in sales per worker. And yet, among big, firms we see flatness in sales per worker since around 2000 and today the level of sales per worker remains far below the peak achieved in 2007 just befor

Abstract

A few key points from this report:

- Japan’s firms, particularly its 5,000 largest firms, have mastered the art of producing growth in profits without growth in sales
- Among all 1 million corporations in the Ministry of Finance (MOF) database in the four quarters through July-Sept. 2015, operating profits were up 9% over year-earlier levels even though sales were up only 0.7%
- Firms have achieved this by cutting costs, particularly labor costs
- What firms call “structural reform” is not finding ways to become more efficient but mostly cost-cutting
- That boosts corporate profits, but does not lead to better growth for the economy as a whole; one person’s costs is another person’s revenue
- The new situation makes firms less financial vulnerable to downturns
-A second implication is that firms have less need to invest in capacity-expanding plant and equipment
- Profit margins (the profits:sales ratio) at the biggest 5,000 firms are at their highest level since the end of the high growth era in 1973