Differences in accounting standards have made it impossible to compare the performance of UK companies against competitors in the US and Japan on the basis of 'value added', the most accurate technical measure of success.
The Department of Trade and Industry, in its study Capex 2001, tried to compare UK businesses with foreign competitors but found it impossible as US GAAP, and other countries, do not make it compulsory to include employee costs in company accounts.
As a result value added, worked out by adding employee costs and depreciation to operating profit, cannot be calculated making it unclear whether British companies are competing.
The DTI study is an examination of how capital expenditure affects company performance.
Mike Tubbs, senior industrialist at the DTI, said working out a value added figure was crucial to knowing how UK business is performing. ‘From the preliminary work we’ve done in the R&D and Capex scoreboards, it is the most accurate way of calculating company performance,’ he said.
Tubbs backed the idea of a single set of accounting rules saying there would be ‘advantages if accountancy practices could compare on the same basis’.
The study found the more a company invested in capital expenditure and R&D, the higher its profitability. The government is attempting to encourage R&D spend by giving large companies tax credit.
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Falling Capex puts UK plc at risk