In its recent bulletin on low gross operating profit (EBITDA) in Luxembourg, Statec has questioned the reliability of this factor as a measure of corporate profitability.
Since 2010, Luxembourg has been in last place in European EBITDA rankings, but Statec has argued that this ranking is biased. In 2015, the EBITDA rate was 6.5% for all non-financial merchant companies in Luxembourg, far behind the European average of 10.7%. But does this mean that Luxembourg companies are less profitable than those in the other countries of the European Union? This question is dealt with in Statec's new bulletin.
According to the report, the economic situation in Luxembourg is peculiar: the low EEA rate calculated in the non-financial market economy reflects an economic fabric largely dominated by a minority of multinational companies, since 5% of companies achieve 90% of sales. Statistics thus reflect the phenomenon of globalisation, which has emerged since the last decade by a strong presence of international trade, manufacturing services and business services (B2B). These activities have low EBITDA levels due to the very high level of turnover, on the one hand, and a smaller share of production, on the other.
The EBITDA rate varies from one branch of activity to another. Non-financial services have the highest rate (12.6%) and the lowest commerce (2.8%). Even within the branches, the extent of the EBE rate is very large. In non-financial services, for example, the highest EBITDA rate is observed in real estate activities (51.1%) while computer repair services and household goods have the lowest rate (4.8%). These differences can be explained by a cost structure that varies depending on the activity being performed, as well as an EBITDA that does not take into account all costs. In this same context, the study focused on the impact of labour on the EBITDA rate.
In addition, Statec has argued that a low EBITDA rate does not always go hand in hand with a low gross operating surplus. Between 2005 and 2015, the EBITDA of the nonfinancial market economy nearly doubled, despite the decline in the EBITDA rate by almost a quarter of its level. Finally, the image drawn at the branch level attests to the presence of a small number of large companies that hide the reality of many other companies. Thus, the study revealed that a quarter of companies in Luxembourg have a negative EBITDA rate.
The bulletin concluded that indicators other than the EBITDA rate should be used to approach several dimensions of profitability, which are beyond the scope of the present study.
