14th July 2019

ROA English

Companies in the Basque Country and Navarre have taken advantage of the favourable economic context to improve their profitability levels. A study analysed the status and progress of business profitability in the Basque Country and Navarre, and concluded that this upturn has placed companies in a better position to pursue their growth strategies, withstand changes in the economic cycle and absorb higher financing costs.

The study examined more than 49,000 balance sheets of companies in the Basque Country and more than 16,000 in Navarre, and compared the analyses with those of businesses in Spain. It concluded that the profitability levels of Navarre companies have been higher than those of Spanish companies, whereas Basque businesses, despite having made good progress, have shown lower profitability in recent years. 

The profitability levels of Navarre companies have been higher than those of Spanish companies.

To better understand this phenomenon, the study provided a breakdown of the return on assets (ROA) of these companies, based on their trade margin and their ability to generate profit relative to their assets. It was observed that, even though Basque companies had a higher trade margin than companies in Navarre and Spain, they generated a lower level of economic activity in relation to their assets. In contrast, Navarre companies, despite having a trade margin similar to that of Spanish companies, generated economic activity more efficiently, which enabled them to achieve higher profitability. The better progress of Navarre and Spanish businesses resulted from asset turnover.

The report noted the difference between the operating ROA and the financial ROA. In the Basque Country, profitability measured by the operating ROA was higher than profitability measured by the financial ROA. The operating ROA was similar for both Basque and Navarre companies (above the Spanish average), their levels being higher to those found before the financial crisis. In this line, the Basque Country and Navarre seemed to have good profitability levels from the perspective of investment.

Finally, Orkestra's study noted that, while the diversity among businesses may have been unnoticed, it became apparent when analysing the differences in profitability between segments of different size companies, as smaller companies were found to have lower levels of profitability. A great degree of diversity was also found when studying the different provinces in the Basque country, as higher levels of profitability were identified in companies from Guipuzcoa and Alava than in Biscayan companies.Finalmente, el estudio de Orkestra señala que la realidad esconde situaciones diversas que se ponen de manifiesto cuando se analizan las diferencias de rentabilidad entre segmentos de tamaños de empresa, donde las empresas de menos tamaño presentan menores niveles de rentabilidades. A la hora de estudiar cada provincia del territorio vasco, también se aprecian situaciones diversas. Así, las empresas guipuzcoanas y alavesas obtienen una mayor rentabilidad en comparación a las vizcaínas.