Statistics Canada reported that corporate operating profits rose for the first time in more than a year in the first quarter of 2002, as the economy continued its recovery. Operating profits reached $34.7 billion in the first quarter, up 9% from the fourth quarter of 2001.

This rebound, which followed four straight quarterly declines, put corporate profits just under the level reached in the third quarter of 2001. However, corporate profits were far below the most recent peak of $45.3 billion in the fourth quarter of 2000.

RBC Financial says that the report carries no market impact, but it, “shows that Canadian corporations posted a strong improvement in their finances to start off the new year. A strong profit surge of 9% over the previous quarter marked a sharp reversal of four quarters of declining profits.”

RBC says that the report also suggests that credit quality is getting better. “Combined with low interest rates, short-term debt reductions and record bond issuance volumes in recent quarters, the result was that interest coverage (cash flows divided by interest expenses on debt) shot sharply upward by about half a percentage point to 5.0X.” RBC says that the broad interest coverage ratio is highly correlated with the value of business bankruptcies over time. “Improving coverage means an improving bankruptcy picture over the quarters that lie ahead,” it says.

http://www.rbc.com/economics/market/daily_e.html