1 ° The figures of the profits
The valuation of listed companies involves reviewing their turnover or annual value added. It is a measure of elementary dynamism justifying the stock market variations.
The added value of public limited companies shows positive signs. The maximum added value of 2007 T-1 & T-2 is found as early as 2010 T-3; the drop in value-added production, which is at a low point in 2009 T-1, is thus erased in a few quarters.
Gross profits recover to their pre-crisis level in the course of 2011.
After subtracting the net balance of capital income (interest, dividend, and financial transactions), gross profits leave companies with their net profit. These profits have the particularity to recover above their pre-crisis level in the second half of 2009.
The examination of the data further shows that the correction of the effects of the crisis reveals a steady growth in the added value produced by public companies as of 2009 T-4; the increase in gross profits has been steady since 2009 T-3, net profits have remained at a high level since 2009 T-4.
The good performance of gross profits can largely be explained by the very slight increase in direct and indirect wages. This growth creates comfortable margins for the net profits of companies to increase.
All of these results seem to justify the valuation of the stock exchanges. In fact, large gross profits hold the promise of larger dividends – this has been the case since the end of the crisis. And large net profits allow companies to invest more, which is rarely without a positive effect on future profits and dividends.
Such figures justify an increase in the value of the shares. Stock market valuation – so important for the value of top ten wealth – is therefore not unjustified at first glance.
It remains to be seen at what level this valuation can reasonably rise. The stagnation of wage income poses a question: that of outlets that cannot be limited to the dynamism of top ten consumption. We will not deal with it here, but it raises an inevitable question: what is a stock market valuation if a fraction of household consumption can no longer support growth?
2 ° Change to the net and gross profit rates
Net and gross profit rates are calculated as a percentage of total value added.
First, gross profit rates that promise dividend increases are not as promising as they seem at first glance. It was not until 2010 T-3 that the profit rates of American anonymous companies regain their pre-crisis level (2006 T-3) around 20%. With gross profit rates of 20%, US companies restore a very good level of profit from 2010 T-3, but this rate of profit does not succeed than to take off by 20% approx. until 2014 T-1. While this figure of 20% is very good, its stagnation raises the problem of the real basis of a stock market valuation that can promise increasing dividends to shareholders.
Keeping in mind that net profits are good indicators of investment capacity and future profits, it must be recognized that US companies have ambiguous results. Net profit rates are in the process of returning to their pre-crisis level in 2014 (6 – 6.5%, reference year before the 2005 crisis). They have been experiencing slow erosion since 2010 T-3. Their exceptional level of 2009 T-3 to 2010 T-3 must be put on the account of the upheavals of the crisis that have heavily weighed on the level of compensation of employees and favored public policies record deficit supporting the economy.
Finally, note the following facts that temper an overly optimistic reading of this graph.
The slow fall in the net profit rate is a sign that the costs of capital ownership are eroding gross profits again, the financial capital held by companies is too low to weigh significantly on the share of capital income (interest and equity). ) that they can monopolize by reducing the pressure of households that are the major holders of financial wealth.
Net profits are no longer promises of massive future investments. As we have had the opportunity to show here, the pressure of financial assets held by households requires anonymous companies to accumulate productive capital and financial capital. As a result, the high level of net profits is not necessarily the promise of new productive investment. The current US investment marked by a double accumulation of capital and an investment centered on the productivity gains testifies of this fact: the companies at the heart of the American capitalism are not about to increase their volume of production, they seek to produce more for less expensive by investing.
A strong stock market valuation, therefore, comes up against realities that only allow a moderate increase in the value of the shares. On its own, the dissociation of net profit rates and gross profit rates should be the most optimistic reflection. The fall in net profit rates goes against the idea of profit and future dividends growing strongly. It follows that the fall in net profits mechanically increases the share of income that can accrue to shareholders, is not as good news as that. The level of dividends today is not guaranteed tomorrow.
3 ° Gross profit rate and market valuation
The examination of relations between stock market valuation and gross profit will show other problems.
From 2005 to 2006 T-3, the stock market valuation is justified by a certain parallelism between the growth of the gross profit rate and market valuation. This parallelism is still obvious after the outbreak of the crisis, The S & P 500 index goes from 1490 (approx.) To 808 while gross profit rates fall from 16.2 to 12.3 after experiencing a slow erosion since 2006 T-3 (20, 4), erosion heralding the crisis.
We can still consider this parallelism at work between 2009 T-1 and 2010 T-3. The rise in gross profit rates is accompanied by a rise in the stock market valuation: The profit rate of 15, 1 in 2009 T-1 was 19.7, the market valuation rose from 808 index points to 1096 during the same period.
It is from 2010 T-4 that the relations between gross profit rate and market valuation are eroded. From this date, gross profit rates tend to rise tendentially. But their central rate seems to stagnate around 19.5% with upward and downward variations of 1. 8%. In these circumstances, nothing can justify the steady growth of the S & P 500 index, which increases by 630 points (50%) during the same period.
High-profit rates alone can not provide the underpinning for a stock market valuation that no longer obeys a relationship with the promise of strong dividends contained in the gross profit rate of US companies.
There is a clear stall between gross profit rates and market valuation which cannot find in itself its justification. Worse still, the comparison of the two indicators makes it possible to talk about the valuation of equities as measured by the S & P 500 index.