“Record profits” is a sentence fragment masquerading as analysis. The missing words are almost always the same: record compared with what, earned on how much capital, and after excluding which costs?
The useful question is not whether the number is larger than last year’s. It is whether each pound tied up in the business is producing more than it used to. A company can post a record absolute profit while its return on capital falls, its working capital stretches, and its owners receive less for taking the same risk.1
Inflation does some of the cosmetic work. Acquisition accounting does the rest. If revenue, assets and debt all set records at the same time, profit alone is not the headline. It is the numerator.
