ROSCOs and New Train Fleets

[whole diary]

[JayMac]

Without those wicked businesses and individuals 

Your word, not mine.

[John R]

Without those wicked businesses and individuals 

Your word, not mine.

I'll let others make their own interpretation of the context of the comment.

[simonw]

I have no objection to any company or business making a profit, and indeed a 30% profit on products is unusual, but a 30+% profit on total business income, for a state controlled industry is not right.

[JayMac]

Without those wicked businesses and individuals 

Your word, not mine.

I'll let others make their own interpretation of the context of the comment.

Why not give your own interpretation? Instead of leaving others to second guess your context.

[John R]

I have no objection to any company or business making a profit, and indeed a 30% profit on products is unusual, but a 30+% profit on total business income, for a state controlled industry is not right.

It could be very reasonable.

Let's suppose a ROSCO^» (Rolling Stock Owning Company - about) buys a fleet of trains for £100m. It expects to run them for 40 years, so the cost pa us 2.5m. Let's assume it budgets for a refurb every 10 years at 15m, which brings the cost up to 4m pa. Ignore for the moment any maintenance costs (say it's the TOCS responsibility.)

So if it works on a 30% profit margin then it would charge 5.2m pa. The return on capital would be 1.2%. No investor would be interested in a business offering such a low return, as it could get a better and risk free return by investing in government bonds. As we see now seeing, although a quasi state industry, the ROSCOS do run considerable risks in holding large amounts of assets on their books that may not have a use for the full 40 years of their life expectancy.