Business success relies on effective investment

According to the Department of Trade and Industry there is a positive relationship between effective capital investment (Capex) and company performance.

The Capex Scoreboard, the annual report published by the DTI's Future and Innovation Unit, showed that profitability, value added, productivity and total shareholder return all increase with greater investment intensity either as investment as percentage of sales or per employee.

UK Science and Innovation Minister Lord Sainsbury said: "The positive links between sustained investment and company growth and performance, highlighted in this Scoreboard, challenge UK companies to respond to the effective investment strategies of their best international competitors.

"A number of UK companies have taken this route to business success but more need to do so. Despite a steady rise in UK Capex investment over recent years (2000 saw a rise of 12 per cent compared to 17 per cent internationally) at 7.9 per cent Capex intensity (Capex as a percentage of sales), the UK still remains below the international level of 9.6 per cent and particularly so for middle-sized companies.

"If our companies are to compete effectively in the future, it is essential that they continue to strive to close this gap. UK companies must also recognise that those companies which fail to invest in future success during difficult times, will find that they are in a more difficult position when market conditions improve, compared to competitors who have invested and are offering new products and services."

The main findings were that total Capex for the top 500 UK companies at 7.9 per cent of sales lagged behind for the top 500 international companies 9.6 per cent.

UK Capex intensity had fallen from 8.5 per cent in the previous year to 7.9 per cent this year, while international intensity was up slightly from 9.5 per cent last year to 9.6 per cent this year.

Looking at investment intensity linked to company performance the report found that profitability for international sectors rises with R&D plus Capex as a percentage of sales, as does UK value added per employee (with R&D plus Capex per employee).

Author of the report, Dr Mike Tubbs, said it was important to strike the right balance between these elements to ensure effective and balanced investment, which will allow a company to reach its full growth potential.

Published annually since 1998, The Capex Scoreboard from the DTI Future and Innovation Unit is produced in conjunction with Edinburgh-based Company Reporting. (SP)

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