ABSTRACT
This chapter sets out the limitations of using financial performance as the only or even a prominent standard of performance for public enterprises. It outlines why the profit figure is subject to manipulation and misinterpretation and is, therefore, to be treated with considerable caution. The chapter examines experience in the UK, and explains why these considerations may well apply a fortiori to public enterprises in developing countries, and indicates possible ways to overcome some of the problems. Profitability has been prominent in the way in which the performance of public enterprises in the UK have been measured ever since they were taken into public ownership. Profitability was given continued prominence in policy statements of successive White Papers and financial targets are expressed in profit terms. The chapter summarises several major problem areas in using a profit figure and individual references are not given for the reason just stated.
