Profits Found to Lag Behind Sales Gains
Businesses in Glendale, the San Fernando Valley and neighboring areas found it tougher to increase profits during the first three months of 1985 despite rising sales, says a survey by the Price Waterhouse accounting firm.
Price Waterhouse’s study reported that 60% of the companies it polled enjoyed higher sales in the first quarter than they had in the last three months of 1984. But the study also found that only 47% of the companies showed increased profits.
In the previous quarter, companies were better able to translate higher sales into higher profits. Price Waterhouse said 53% of the businesses reported higher sales and 47% showed higher profits for the last quarter of 1984.
“There are some mixed signals here,” said Rock Hankin, managing partner of Price Waterhouse’s office in Woodland Hills.
Price Competition
“The markets are not growing as fast as the companies anticipated, and that’s leading to price competition.”
Hankin said price-cutting is the main reason that profits are being squeezed. In addition, he said, local companies were hurt by less-efficient production and by competition from imports.
Price Waterhouse’s study also suggested that slower payment by customers of companies in the Valley area is narrowing profit margins.
The survey reported that 53% of local companies waited, on average, 45 days or more to collect payment on bills in the first quarter. That was up from 43% during the fourth quarter.
Sign of Optimism
Hankin said the indications that local businesses are encountering more difficult times dovetail with business conditions across the country. He said defense subcontractors in the Valley area, a dominant sector of the local economy, generally have not fully benefited from the federal government’s defense buildup.
At least one sign of optimism emerged in the study. Forty-four percent of the companies polled said they planned to increase employment in the next quarter, up from 38% in the last quarterly survey.
The findings of the survey were based on responses from more than 200 companies. Most of those companies are based in the Valley but some of the replies came from businesses in Glendale and in Ventura and Santa Barbara counties.
