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Non-Financial Corporations (S.11)

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Profit share of non-financial corporations
The dramatic increase in GDP of 26.3 per cent in 2015 is mainly explained by an increase in the gross value added (GVA) of non-financial corporations. In 2015 GVA of non-financial corporations increased by €57.1bn, from €113.2bn in 2014 to €170.3bn in 2015. The operating surplus (B.2g/B.3g) or profits of non-financial corporations increased by €53.5bn, from €67bn in 2014 to €120.5bn in 2015 (see summary table). The other main component of value added (B.1g) is compensation of employees (D.1 Uses - COE) which showed a more modest increase of €3.6bn, from €44.9bn in 2014 to €48.5bn in 2015. The small change in compensation of employees reflects the fact that the increases in GVA were driven by contract manufacturing activities abroad with no significant impact on domestic employment. The sharp rate of increase in profits compared to compensation of employees resulted in an increased profit share of value added from 59.2 per cent in 2014 to 70.8 per cent in 2015.

Gross Value AddedProfitsProfit Share (right axis)
200591.149785022059849.483069142406454.2876421819653
200698.945791375186753.348025456956953.9164169748965
2007104.46573159315354.614197659570252.2795339932795
200895.935813481977945.662679864343947.597115411881
200988.508109424489744.515138417104550.2949828061601
201089.119132936907548.518151013366754.4419019961914
201197.138854975720956.359326735850158.0193443189511
2012100.54475001708459.314221707848458.9928581032525
2013106.78726452513363.165953321745559.1512045960119
2014113.15681347754967.035910678496459.2416034159504
2015170.2897617408120.52540508474270.7766596492133

Investment
Although 2015 was characterised by very large additions to the stock of capital assets in Ireland, this occurred as a result of corporate relocations that were recorded mainly as changes in the capital asset balance sheets1 of non-financial corporations rather than as transactions in capital formation. Nevertheless there were significant additions to capital formation of €41bn in 2015, compared to €28bn in 2014.

In 2015 the increase in capital formation is coupled in a similar proportionate change in gross value added. As a result, the investment rate, which expresses gross fixed capital formation as a percentage of gross value added, is relatively flat between 2014 and 2015, declining by only 0.3 percent from 24.4 per cent in 2014 to 24.1 per cent in 2015.

Gross Value AddedGFCFInvestment Rate (right axis)
200591.149785022059821.091872497478423.1397940130893
200698.945791375186723.02050711148423.2657769386006
2007104.46573159315322.759088539948921.7861763784754
200895.935813481977918.469497735728819.2519321673323
200988.508109424489719.531120256064922.0670403910591
201089.119132936907516.823900557793418.8779894994086
201197.138854975720919.178656690876319.7435482389306
2012100.54475001708424.696575099957724.5627694094036
2013106.78726452513322.84301020213121.3911371395367
2014113.15681347754927.615180156101824.4043458872945
2015170.289761740841.001086781244824.0772471357691

Return on equity
The return on equity is a measure of corporate profitability. It is the ratio of entrepreneurial income (B.4g) less taxes on income and wealth (D.5) to total equity liabilities (Table 3 – Balance Sheets AF.5). The various components are graphed in Figure 7.

Entrepreneurial Inc excl current taxesEquity LiabilitiesReturn on Equity (right axis)
200544.5550535873775183.20861080655624.3193010367955
200647.2608187648809205.3171279277323.0184491873062
200747.8707436493293244.64628247881419.5673292740407
200839.1000405151334233.29078884056216.7602161703245
200942.8189102188592278.14027637162115.3947176501864
201051.4139703991187303.25874110358616.9538296611067
201158.2668142815234312.57345641044518.6409988073371
201262.7274272746859391.83173851716.0087662913923
201366.7717175475961510.4906766500513.0799093111292
201471.6740012243944626.63117445083211.437988428713
2015118.391097003827986.18379383411712.0049728807185

The impact of the redomiciled plcs or corporate inversions on this indicator has been quite significant over the past few years and is an important factor in explaining the downward trend in the rate of return. However, most of the increase in the equity balance sheet position from €627bn in 2014 to €986bn in 2015 is related to corporate relocations that are the key explanation for the dramatic increase in Ireland's GDP in 2015. The arrival of these corporate balance sheets has increased the level of direct investment equity liabilities to the foreign owners of these corporations. In fact, the entrepreneurial income or return from these investments has risen by €46bn, from €72bn in 2014 to €118bn in 2015, an increase of almost 64 per cent. However, the commensurate increase in financial liabilities resulted in an increase of 0.6 per cent on return on equity, from 11.4 per cent in 2014 to 12 per cent in 2015.


1See publication on Stock of capital assets

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