Analysis exposes that the rich get richer

Citation

(2000), "Analysis exposes that the rich get richer", Aircraft Engineering and Aerospace Technology, Vol. 72 No. 4. https://doi.org/10.1108/aeat.2000.12772daf.006

Analysis exposes that the rich get richer

Analysis exposes that the rich get richer

Keywords: Plimsoll, Aerospace industry

To achieve top performance in the aviation equipment industry you must beat the best. With an enormous gap developing between the "best" and the "rest" in the industry, effectively 179 companies are reaping massive profits while the rest of the industry flounder in mediocrity.

These 179 best companies are revealed in the latest Plimsoll Portfolio Analysis: Aviation Equipment covering 1,054 companies. On average these outstanding businesses are delivering a 48.3 per cent pre-tax profit margin! Believe it or not, this is six times better than the dull industry average of 8.2 per cent.

Delivering these outstanding profits is not easy; these companies excel in many areas. Gross profit margins are as much as 91.6 per cent of sales compared to industry norms of 29.6 per cent. This alone gives them a big advantage. But perhaps their biggest trick is their ability to "hammer the assets" by getting their fixed assets to generate more sales. Their sales returns on fixed assets are almost 7.8 per cent compared to the industry average of 12.7 per cent.

Turning sales into profits is essential if you are going to create a future. Turning sales into dividends and retaining profits rewards the shareholders and also builds strength into the company. These companies are doing both by returning on average almost 27 per cent of sales to the shareholders and retaining over 5 per cent of sales on the balance-sheet to strengthen and provide for the company's future.

Pitch these companies against those in the industry that are currently loss makers and the comparison is frightening. These 133 loss-making companies are consuming almost 7.2 per cent of their sales. Essentially, they are drawing on reserves to fund their losses. According to Don Turkington, managing director of Plimsoll, "Profits are essential to drive a company's ambitions and to not constrain the management. You lose money, and somebody has to pick up the bill!"

These loss-makers have three choices for the future, as they cannot continue to make losses. One, they can try to improve their profitability, which for many will prove very difficult. Two, they will fail and three, and perhaps most likely, the more profitable companies will snap them up on "the cheap" taking a new approach to clearing overheads and interest payments. What else will they do with all that cash?

Ultimately these loss-making companies will drop out of the bottom of the pack. What cannot be ignored is the shift in position of the 742 companies in the mediocrity with a slim 8.2 per cent on average margin as these rich companies continue to get richer. The pressure of which will be to force many of these into losses next year. So who's next?

A copy of the report, the Plimsoll Portfolio Analysis: Aviation Equipment is available for £305. To obtain more details and to obtain a free list of the top 50 most profitable companies in the aviation equipment industry, ring Plimsoll on 01642 257800. Readers of this publication can receive a 5 per cent discount when mentioning this article upon ordering.