Companies’ cash flow and net profits, and gross investment and net investment

Observers tend to comment on trends in companies’ gross profits, i.e. their cash flow, and not their net profits, i.e. after deductions for depreciation (consumption of fixed capital). They tend to also look at companies’ gross investment, and not their net investment (after deductions for consumption of fixed capital). Cash flow shows how much investment capacity a compan y has ; gross investment shows it investment needs. But net profits show a compan y’s true return on capital and net investment it s true capital accumulation. When we look at these different series in the case of France, we see that: Net profits (relative to GDP) have declined as a trend, while gross profits (cash flow) have risen; companies’ true net return on capital has fallen; Net investment (relative to GDP) regained its 2007 level in 2019, whereas gross investment was much higher in 2019 . The rise in consumption of fixed capital (capital depreciation) due to the decline in the lifespan of equipment has given rise to major disparit ies between net and gross series.