Points Against Shares In Capital Goods

Points Against Shares In Capital Goods

Points against shares in capital goods

(i) These companies depend for their continuing prosperity on the rate of expansion in the national economy, at present geared by the Government at 4% per annum. And while good profits can be made these sometimes take a long time to filter through, and a loss can be severe.

(ii) As so much of the companies' custom is from abroad, they depend even more upon the rate of growth in world trade.

(iii) The comparative smallness of the home maker is itself a handicap to British companies which are competing in world markets. These companies have still to effect greater concentration in their manufacturing, particularly in those sectors requiring capital investment in buildings and plant, and in research and development; and this will mean more mergers and rationalisation.

(iv) To capture the export market, intensive and costly sales drives must be continuously maintained. Export others are often obtained only at un-remunerative prices with low profit margins, involving generous credit terms to foreign customers, and payment over a period of years.

(v) The home market depends to a great extent on government action:

(a) General economic measures, whether inflationary or deflationary, determining credit facilities, and thus the ability of companies to order capital goods.

(b) The extent of tax relief in respect of capital expenditure by other industries through the medium of investment allowances or other measures.

(c)Rate of fuel tax.

(d)Local rates.

(vi) The capital goods Industry depends to some extent on the ability of manufacturing concerns, to whom they supply equipment, to sell their own finished products.

(vii)Capital goods concerns are dependent upon the circum-stances of their customers, many of whom are reluctant to order capital goods for these reasons: (a) Because they are suffering from reduced profitability in their own trade; (b) because they have a surplus of stocks, and (c) because they are facing political uncertainties.

(viii)Since steel is used for almost all capital goods, the profits of these companies will depend on the price of steel. Should the threat to nationalise Britain's basic heavy industry materialise, the future of steel prices will become uncertain, with the risk of jeopardising the ability of our capital goods Industry to compete abroad.

(ix)in the building trade, which includes housing, town development, road making and civil engineering, although to all appearances business is thriving, it should be borne in mind that there are constant demands for higher wages, shortages of skilled labour, the risks incidental to adverse weather conditions, and keen competition, all leading to lower profit margins.


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