The Canadian furniture industry’s profit performance – in relation to the profitability in overall manufacturing – depends on the kind of financial indicators chosen. The two most commonly used profitability indicators are:

– the rate of pre-tax profits to total assets (or rate of return on assets)
– the rate of pre-tax profits to total revenues (or pre-tax profit margin)

The furniture industry’s rate of return on assets has exceeded the same ratio among manufacturers in general in each year since 1997. In 2004 the rate among furniture manufacturers averaged 7.5%, well ahead of the 6.2% prevailing among manufacturers in general.

The rate of return on assets moves in step with the general business cycle. In fact, the rate declined significantly from is peak level of 13.2% in the boom year of 1999.

Pre-tax profits as a rate of return on total sales among furniture manufacturers exceeded the same ratio among manufacturers in general in 1999, 2001 and 2002. However, the relative strength of furniture manufacturers with respect to this measure does no longer prevail at the present time. The rates of return on sales among furniture manufacturers were well below those of manufacturers in general throughout most of the 1990s and again in 2003 and 2004.

The rate of return on sales – like the rate of return on assets – rises and falls with the stage of the business cycle both among manufacturers in general and among furniture manufacturers. In the furniture industry the rate declined from its peak of 7.4% in 1999 to a cyclical low in 2003, but rose again in 2004 to 4.9%.

With the growing competion from imports from low-cost countries, we fear that the fiancial health of the Canadian furniture industry may deteriorate in the years to come.