It is cash flow that ultimately pays for construction, equipment and the acquisition of new machinery that, in turn, enable companies to expand production and grow. In manufacturing, there is an 18-month lead time between cash flow and capital investment activity.
Capital investment has been decreasing across Canada’s manufacturing sector. Investment declined by 4.2% in 1992, but it is likely to increase by 2% in 1993. Even so, cash flows will suffer with the “available/put in use” capital cost allowance rules in the Income Tax Act.
The construction of facilities or the expansion of existing capacity is likely to remain depressed in 1993 — the result of capacity utilization rates that continue to hover around the 75-78% level for the industry as a whole, coupled with a vacancy rate that remains relatively high. Investment, instead, will be heavily concentrated in machinery and equipment as manufacturers continue to invest in the acquisition and use of advanced production technologies that will allow companies to operate more efficiently. With internal cash flow under severe strain, manufacturers can not afford to borrow money unless they are relatively certain of real output growth or significantly reduced costs. Such conditions are likely to be applied by Canada’s banks or by other capital market institutions.
For many companies, large and small, the only alternative is to withdraw cash from their pool of retained earnings or to dispose of fixed assets, often at a loss.
In 1992, manufacturers’ retained earnings fell by 8%, helping boost internal cash flow and, ultimately, investment activity, but, at the same time, diluting the equity of their corporations. A dual danger therefore exists. On one hand, the equity base of the manufacturing sector is being eroded. On the other, without a significant improvement in financial performance, Canadian manufacturers risk losing out on a whole generation of machinery because they have not kept pace with investments made by competitors around the world. — From a pre-budget submission to the federal government by the Canadian Manufacturers’ Association
It is cash flow that ultimately pays for construction, equipment and the acquisition of new machinery that, in turn, enable companies to expand production and grow. In manufacturing, there is an 18-month lead time between cash flow and capital investment activity.
Capital investment has been decreasing across Canada’s manufacturing sector. Investment declined by 4.2% in 1992, but it is likely to increase by 2% in 1993. Even so, cash flows will suffer with the “available/put in use” capital cost allowance rules in the Income Tax Act.
The construction of facilities or the expansion of existing capacity is likely to remain depressed in 1993 — the result of capacity utilization rates that continue to hover around the 75-78% level for the industry as a whole, coupled with a vacancy rate that remains relatively high. Investment, instead, will be heavily concentrated in machinery and equipment as manufacturers continue to invest in the acquisition and use of advanced production technologies that will allow companies to operate more efficiently. With internal cash flow under severe strain, manufacturers can not afford to borrow money unless they are relatively certain of real output growth or significantly reduced costs. Such conditions are likely to be applied by Canada’s banks or by other capital market institutions.
For many companies, large and small, the only alternative is to withdraw cash from their pool of retained earnings or to dispose of fixed assets, often at a loss.
In 1992, manufacturers’ retained earnings fell by 8%, helping boost internal cash flow and, ultimately, investment activity, but, at the same time, diluting the equity of their corporations. A dual danger therefore exists. On one hand, the equity base of the manufacturing sector is being eroded. On the other, without a significant improvement in financial performance, Canadian manufacturers risk losing out on a whole generation of machinery because they have not kept pace with investments made by competitors around the world. — From a pre-budget submission to the federal government by the Canadian Manufacturers’ Association
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