Corporate operating profits hit an all-time high in 2004 as the Canadian economy rebounded strongly from a series of negative shocks in 2003 that included an appreciating dollar, the power blackout in Ontario, BSE in Alberta cattle and SARS.

Corporations earned profits of $216.6 billion, surpassing the previous record of $191.5 billion set in 2000.

The improvement was broadly based, as profits in the non-financial industries surged 15.3% to $158.3 billion and those in the financial industries rose 13.1% to a record high $58.3 billion.

The top five industries ranked by operating profits were: banking and other depository credit intermediation; oil and gas extraction and support activities; securities and commodity exchanges and other financial investment activities; utilities; and petroleum and coal products manufacturing.

For the second consecutive year, all industries except air transportation were profitable. However, their operating loss was slashed to near break-even in 2004.

Manufacturers rebound in 2004

Growth in the non-financial industries was driven by a rebound in manufacturing profits, which increased 36.2% to $44.5 billion after a 13.7% decline in 2003. The negative impact of an appreciating Canadian dollar on exporting manufacturers was offset by strong global demand, soaring energy prices and a vibrant North American construction market.

Operating profits for wood product manufacturers more than tripled to $4.8 billion, as did profits of primary metal manufacturers, which hit $3.7 billion. Profits for petroleum and coal producers reached $9.1 billion, a 42.4% increase.

Chart 1.1
Record high operating profits in 2004

The largest percentage increase was recorded by basic chemical manufacturers whose operating profits increased more than ten-fold to $1.5 billion. Computer and electronic product manufacturers also showed signs of a turnaround with operating profits more than doubling to $1.6 billion.

The manufacturing sector’s performance was not all positive, as eight of the 22 industries recorded a combined decline in profits of $1.6 billion. The largest drop was recorded by motor vehicle and trailer manufacturers, whose profits fell 46.1% to $740 million.

Higher prices lift mining sector

Higher metal and coal prices driven by strong demand, helped boost operating profits in the mining industry to their highest level since 2000. The industry reported operating profits of $3.2 billion, up 57.3% over 2003.

China is emerging as a significant consumer, driving demand and prices higher. Higher prices more than offset the negative impact of an appreciating Canadian dollar.

Construction maintains healthy profits

Relatively low mortgage and financing costs continued to stoke the red hot housing and construction markets. The construction industry recorded robust gains in 2004 with operating profits increasing 22.1% to $6.2 billion.

Record levels of existing home sales have helped to spur on a rapidly growing market for home improvements. Governments were also busy upgrading infrastructure in transportation, education, health, energy and municipal utilities.

Construction in the resource sector, especially in the oil and gas and mining industries, was underpinned by strong demand and rising prices.

Wholesalers and retailers

Operating profits in the wholesale sector rose 26.0% to $13.3 billion while retailers posted a gain of 6.7% to $14.7 billion.

More than a third of the wholesale gain was contributed by building material and supplies wholesaler-distributors, which benefited from strength in the construction and home renovation markets.

Food and beverage stores; and clothing, department and other general merchandise stores accounted for most of the improvement by retailers.

Finance and insurance sector gains moderated

After operating profits increased by a remarkable 30.4% in 2003, gains for the finance and insurance sector moderated to 13.1% in 2004, reaching an all-time high of $58.3 billion.

Deposit credit intermediaries, led by the chartered banks, posted operating profits of $23.6 billion, up 9.4% from 2003. The gains were supported by improved confidence in the capital markets and strong demand for consumer and corporate loans.

Corporations involved in securities and commodity exchanges and other financial investment activities had a banner year. Operating profits were up 35.4% to $12.6 billion in 2004, their most profitable year since 2000. Similarly, operating profits for property and casualty insurers surged 75.5% to $6.5 billion.

Financial ratios

The major financial ratios at the all industries level improved in 2004. The debt to equity ratio was reduced to 1.09 from 1.13 and profit margins rose moderately by 0.6 percentage points to 8.1%. Return on equity and return on capital employed both improved on account of higher corporate profits. Return on equity rose 1.0 percentage points to 12.2%, and return on capital employed increased 0.6 percentage points to 7.9%.

Text table 1.1
Financial and taxation statistics for enterprises