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October 2015

Global – Rising profits

By Tarun Kumar G. Singhal
Raman Jokhakar Chartered Accountants
Reading Time 1 mins
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Global corporate profits have soared since 1980.

A new study by
McKinsey Global Institute (MGI) estimates that operating profits after
tax of the largest companies grew from $2 trillion to $7.2 trillion in
2013.

The reasons: corporate taxes were slashed across the
world, interest rates collapsed and labour costs stagnated after the
entry of millions of Chinese and Indian workers into the global economy.

MGI says large companies from emerging markets are driving
global revenue growth while profit rates are higher in developed
economies. The latter have more companies that create value from
intangibles like brands or technology while emerging markets still have
companies that make intensive use of their physical assets.

The
rise of emerging market corporate giants is one reason MGI expects
profits to fall as a proportion of the global economy in the coming
years.

(Source: Editorial in Quick Edit of Mint dated 10-09-2015.)

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