Italian company earnings 'don’t cover cost of capital'

'More cost-effective to invest in bonds' says Mediobanca

Italian company earnings 'don’t cover cost of capital'

(ANSA) - Milan, August 8 - Running a business in Italy does not make economic sense because earnings do not cover the cost of capital, Italy's largest investment bank Mediobanca said Wednesday in its "Cumulative Data of 2,032 Italian companies" report. In 2011 the cost of debt rose to 6% from 5.6%, while the return on 10-year Italian government bonds increased to 4.9% from 3.4%. The average net return on investment of Italian companies is 5.8%, insufficient to remunerate both proprietary and third-party capital, the report said, adding it is more cost-effective to invest in government bonds than to run a business. Mediobanca said because of this, during the course of the year some 1.4% of the total value of industrial businesses in Italy have been destroyed. Large groups have suffered more than the rest, while that of medium to large companies has been more contained, Mediobanca said. Only foreign-controlled companies have been exempt from the destruction of value, due to the high remuneration of capital that these enjoy, according to the report.

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