Am I the only one who gets frustrated with the way the BBC news reports company results? Every news report seems to focus on, “This very large company (with highly paid directors) made (some large number with billions in it) profits last year. That is £(a huge amount – far bigger than a national lottery win) every day (from you the consumer)”.
Yet they never seem able to say, “Actually they turned over £120bn and therefore their return is less that 4%.” It is as if they only seem to judge profitability in absolute terms converted to some daily average.
I have put below example extracts from news postings from the BBC website. In each case, I have included the link, so you can see what I mean, as these are usually the only references to relative profitability.
Shell, the Anglo-Dutch energy giant generated profits of $22.94bn (£13.12bn) – up nearly a third on last year when it set a UK record with profits of $17.59bn. http://news.bbc.co.uk/1/hi/business/4672716.stm
There is no mention of turnover or return on assets. The main emphasis here was that oil prices have risen, so they seemed to make a windfall profit from that. Perhaps they did. It is really hard managing a business where your raw material prices are volatile in a range of 300%. Frankly, I would include some slack in that one.
BT is battling a decline in its fixed line business Telecoms giant BT has unveiled a slight rise in profits for the first half of the year. Pre-tax profits before one-off costs rose 3% to £1.13bn in the six months to September 30, compared to one year ago. http://news.bbc.co.uk/1/hi/business/4423890.stm
At least in this article it mentions But BT profits fell in the second quarter to £489m from £571m – thanks to the £70m cost of setting up Openreach. But still no mention of profit as a
rate of return. It is useful to know that profits have risen 3%, but against what base?
Texas-based Dell said it expected profits of 21 cents to 23 cents per share in the second quarter, way below analysts’ forecasts of 32 cents. …The group is investing $100m on customer service, which Dell views as crucial to its market position. http://news.bbc.co.uk/1/hi/business/5203452.stm
Now this looks like it has been picked up from a US service and re-published, but it is the same thing. Profits per share is useful if you are looking at return on your shares. It only tells you a little about the group, but you would not hear this on the BBC news broadcasts.
Another one:
Swedish telecoms company Ericsson has said profits are still falling since last year’s £1.2bn ($2.2bn) purchase of loss-making Marconi. Net profit for the second quarter of 2006 was 8.29bn kronor ($600m; £323m), 2% down on the same period in 2005. http://newsvote.bbc.co.uk/1/hi/business/5202106.stm
Again, no information about what this means.
I have pulled these off the website and I accept that these are necessarily short stories, but it is also (more) true of the news reporting. I am yet to hear on the “Today Programme” a mention of return on capital, or return on assets.
Question: Are these companies actually doing well, or would I be better investing my money in a savings account rather than BT shares?
Now the BBC has been receiving its own medicine over its own profits. A search for “BBC profits” on google produces over 9 million hits. Many of the discussions about licence fees, BBC worldwide profits and salaries for their executives have had the same flavour as they apply to all other company reports. (Well, at least they are being consistent)
Whereas the Times online reported:
THE BBC’S commercial arm is planning an expansion of its international activities, which could lead to it starting as many as six channels in countries such as the United States and India. It believes that it can boost last year’s trading profits of £89.4 million by selling British television, magazines and new media to the world, providing a top-up to its £2.9 billion licence-fee income.
Slightly more interesting, as I can tell that all the fuss is about £90m profits compared with £2.9bn licence fee income. (but not much help).
Let me cut to the chase.
If the BBC persists in reporting business matters in such a simplistic and misleading way, they only serve to propagate a view that commercial organisations are bad things. They’re not.
What disappoints me is that people like Evan Davis (the BBC’s economics editor) are excellent, far sighted insightful reporters. Yet the main news reporters get away with reporting that seems to carry an agenda of “large corporates make excessive profits out of you”.
It is only with some amusement that I see that the BBC has been getting a dose of its own medicine, but it does not solve the problem.
I am going to say this loudly.
BUSINESS IS GOOD and a force for good.
The world is a better place for capitalism.
Your pensions are invested in these companies, so you have a right to know the return on assets, investment and capital.
Unless business is reported in a way that informs and supports they will continue to perpetrate inaccurate thinking about business. Just look at the way they have rammed down our throats through the years that maths is difficult and science is complicated (and needs fancy graphics and esoteric music to fill in gaps, rather than assume we can understand such things). As a result, look where we are as a nation with numeric ability.
So, rant over. But I so wanted to get that off my chest.
Phil
