Who was responsible for generating the amount? Statistics South Africa’s Quarterly Financial Statistics (QFS) report, which provides regular updates on the financial state and make-up of the formal business sector, provides us with a breakdown.
According to the report, the trade sector was the largest player in the business landscape, contributing 36% with manufacturing coming in second at 27% and business services at 12%.
But simply taking turnover on its own as a measure of commercial success does not provide a complete account. As in all areas of life, costs are inevitable, eroding any turnover that is generated.
The two largest expenditure items faced by South African businesses were purchases, taking up 61% of total spending, and employment costs (14%). Other items measured (including interest on debt, hiring of vehicles and machinery, royalties, and renting of buildings) accounted for about 10 percent. The miscellaneous category, referred to as “other expenditure”, assumed responsibility for the remaining amount.
After all this spending, including tax and adjustments for inventories, the R2.3trillion in turnover generated by the business sector was whittled down to R256 billion.
This is the profit earned after taxation.
Simply knowing how much profit was generated does not provide us with a full indication of business performance. Context is required, and this is achieved by using a handy accounting measure called the profit margin ratio.
There are many accounting measures available in the analyst's tool kit. By comparing two or more financial values where a relationship exists, accounting measures allow the analyst to dig a little deeper into the financial data, and to piece together a picture of business performance.
The profit margin ratio is calculated by dividing the profit or loss after tax by total sales or turnover. Simply stated, the ratio indicates how much of each rand earned by the industry in turnover is translated into profit.
Overall, the business sector earned 11 cents of profit for every rand of turnover generated in the second quarter of the year.
As mentioned earlier, trade earns the bulk of total turnover.
In terms of profit margin, the industry was ranked fifth in the second quarter at four cents for every rand of turnover generated.
Business services took the top spot as the industry with the highest profit margin ratio, followed by personal services, manufacturing and transport. Construction was in sixth place, with two cents of profit for every rand of turnover generated.
The electricity, gas and water supply industry, as well as mining, experienced losses, however. For electricity gas and water, it was the third consecutive quarter in which the industry spent more than it earned.
With the economy just recently emerging from recession, all eyes will be focussed on a number of economic indicators, including business performance.
Pali Lehohla is the former Statistician-General for Statistics South Africa
- BUSINESS REPORT