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The capital conundrum

Everybody knows company bosses will be hacking back costs with grim determination in the coming months. The process has started even if the effects aren’t much in evidence in the batch of results being released at this time of year. So, for example, farming supplies producer and engineer Carr’s Group (CARR), whose shares are in the Bearbull Income Fund, showed a 2 per cent drop in revenue for 2019-20, but, because costs adjust slower than sales, a 20 per cent drop in operating profit.

In the coming 12 months the process will go into reverse. Costs will slide more than revenue as so-called discretionary items are wiped from company budgets; labelled ‘discretionary’ because their absence brings immediate benefit to profits and cash flow while the detrimental effects are both remote and fuzzy.

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