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Business performance and ownership

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From mom-and-pop shops on Main Street to corporate headquarters on Bay Street, Canadian companies have played a big role in this country’s robust economic growth over the last decade. By steadily increasing their operating revenues and profits, Canadian firms—the overwhelming majority of them small businesses with 19 or fewer employees—have helped fuel the economic boom by expanding, creating more jobs, and fostering consumer spending.

Setting new records for revenue


Collectively, these firms generated more than $3 trillion in revenue in 2006, hitting a new all-time high and continuing an unbroken run of revenue growth begun in 1999. Most industries saw their revenues climb in 2006, and operating profits—the amount of revenue left over once pre-tax expenses are accounted for—also pushed upwards. Canadian corporations earned operating profits of $269.1 billion in 2007. Growth in operating profit has been strong in recent years, rising 5.9% in 2007 and in the double digits in each of the preceding four years.

Thanks to trends in the overall economy, banking, retail and petroleum refining companies have been exceptionally strong performers. Low interest rates have helped banks generate more income from business loans, mortgages and other financial programs, and chartered banks saw operating profits rise nearly 19% to $32.5 billion in 2007.

With Canadians continuing to shop at a fast pace, the retail industry generated an all-time high of $16.5 billion in operating profits, up from $13.6 billion in 2006. Clothing, department and other general merchandise stores did particularly well. And the steady increase in the price of oil meant that petroleum companies were extracting more revenue from every barrel—earning operating profits of $12.7 billion.

Other industries also saw big growth in operating profits in 2007. Food and soft drink producers’ profits rose by one-fifth, and computer and electrical products manufacturers’ by one-third. The wholesale trade industry saw widespread profit growth, expanding by one-eighth overall.

However, some industries saw their fortunes decline in 2007. Some manufacturing industries grew, but revenues for the manufacturing sector overall shrank in each quarter of 2007. Wood and paper manufacturers continued to struggle with weak demand and lower prices, and posted a 76% decline in profits. The year was also difficult for primary metal producers, who saw profits drop 34%, and the motor vehicles and parts manufacturing industry, whose profits fell 22%. Manufacturing was particularly hit by the higher value of the Canadian dollar in 2007.

Traditional industries such as agriculture, forestry, fishing and hunting, and mining (other than oil and gas) also saw lower revenues over the course of the year.

Some companies are more profitable than others


The average profit margin for all Canadian industries rose for a sixth consecutive year in 2007, to 9%. In other words, for every $100 earned by providing goods or services, Canadian companies kept almost $9 as profit on average.

The companies that manage Canadians’ money made up the industry with the highest profit margins. Firms in the finance and insurance industries outpaced all other Canadian companies, generating overall profit margins of 27% in 2007. The securities and financial investment subsector did particularly well, at 39%.

The real estate, mining, and oil and gas industries were also strong performers, keeping about 20%, 18% and 17% of their revenues as profits, respectively. Profit margins were slimmer than average for the wholesale trade, retail trade, construction and accommodation and food industries, at 4% to 5%. The utilities and manufacturing industries were slightly higher, tracking closer to the average.

More profit, more taxes


Healthy bottom lines for Canadian companies mean more taxes payable to the government, and in 2006 taxes owed by companies increased across the board. Taxable income rose 18.4% to $170.8 billion, generating $55.0 billion in total taxes. Of this total, the federal government claimed $37.3 billion, and the provinces $17.7 billion.

Non-financial companies generated $42.8 billion in taxes payable; the oil and gas industry accounted for $5.3 billion of that total. Of the $12.2 billion owed by the finance and insurance industries, banks accounted for $4.3 billion, or about one-third of the total.

To help maintain a competitive environment for businesses, the government also provides some tax relief. A total of $33.2 billion in tax credits were used in 2006, the largest portion of which was a federal tax abatement in recognition of the fact that provincial governments collect their own income taxes. About $6 billion in tax credits were generated by deductions granted to small businesses.

Foreign control in the economy largely unchanged


Of the 1.2 million corporations doing business in Canada in 2005, less than 1% were foreign-controlled—a proportion that has changed very little over time. But despite their small numbers, foreign-controlled corporations are big players in the economy, accounting for about 30% of all operating revenues and 30% of all operating profits.

All told, these corporations generated $76.2 billion in profits in 2005. While profit growth for foreign-controlled companies was strong in 2005, at 12.5%, Canadian-controlled corporations saw their profits rise even faster, by 15.9%.

The large majority of foreign-controlled firms operate in the non-financial sector, as stricter regulations on foreign control in industries such as banking limit foreign investment. Nearly four-fifths of all profits generated by foreign firms came from the non-financial sector. However, profits for the foreign-controlled corporations that do operate in the finance and insurance industries have grown stronger than Canadian ones in recent years.

Since setting up operations in another country requires considerable resources, foreign-controlled corporations are typically larger than Canadian firms. Other differences also set them apart from Canadian companies: foreign-controlled plants are generally larger, have a higher rate of labour productivity, pay more per worker and have a higher percentage of white-collar workers. Foreign firms are also more likely to diversify across different industries.

Foreign-controlled firms create new head-office jobs in Canada: about 60% of new head-office jobs from 1999 to 2005 were in foreign firms. In fact, foreign takeovers during this period have resulted in more being opened than being closed.