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How good was the profitability of British railways, 1870–1912?
Author(s) -
MITCHELL BRIAN,
CHAMBERS DAVID,
CRAFTS NICK
Publication year - 2011
Publication title -
the economic history review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.014
H-Index - 49
eISSN - 1468-0289
pISSN - 0013-0117
DOI - 10.1111/j.1468-0289.2010.00550.x
Subject(s) - inefficiency , fell , profitability index , portfolio , economics , capital (architecture) , return on capital employed , business , return on capital , finance , monetary economics , market economy , capital formation , financial capital , geography , human capital , cartography , archaeology
This article provides new estimates of the return on capital employed (ROCE) for major British railway companies. It shows that ROCE was generally below the cost of capital after the mid‐1870s and fell until the turn of the century. Addressing cost inefficiency issues could have restored ROCE to an adequate level in the late 1890s but not in 1910. Declines in ROCE hit share prices and investors made little or no money in real terms after 1897. Optimal portfolio analysis shows that, while railway securities were attractive to investors before this date, they would have been justified in rushing to the exits thereafter.