SMALL firms lobby group ISME has dismissed a Forfas report on the profitability of the Irish companies as "superficial". That report found profit margins had slipped from 4.4 per cent in 1991 to 4.1 per cent three years later.

ISME said last night that, although the figures were very close to those calculated by themselves in their own 1995 report on financing SMEs, they "completely fail to disclose the underlying poor profit margins, or losses, sustained by much of Irish industry".

ISME said its report showed that the profitability of a business was determined by its return on capital employed. "Profit margins are just one component of this measure, with the other being ratio of sales to capital employed," it said.

The organisation said it analysed 2,000 companies accounts, lodged in the Companies Office. It found that almost one quarter reported negative profit margins, while only one tenth had margins in excess of 15 per cent.

Larger firms achieved substantially higher profit margins (4.5 per cent) compared to their smaller counterparts (2.6 per cent) "and these tended to dramatically inflate the average margin for industry as a whole", ISME said.

In general, manufacturers were more likely to report losses than service companies. Almost one third of small manufacturers were making losses, compared with less than one fifth of larger manufacturers.

The organisation called for the immediate establishment of a competition council which would be charged with developing policy and strategy to improve the average profitability of the indigenous sector to 10 per cent by the year 2000.