Last Friday Woolworths reported an increase in annual pre-tax profit from $3,214 million last year to $3,515 million in 2014. This was an improvement of 9.4 per cent. After-tax net profit increased 8.5 per cent from $2,259 million last year to $2,451 million.

Scanning the reports of some other companies we see net profit at Insurance Australia Group up 13 per cent and at Brambles up five per cent. Wesfarmers increased its net result by 19 per cent while Sonic Healthcare profits rose 15 per cent. The Stock Exchange itself increased its profit 10 per cent. 

Commonwealth Bank announced a net profit after tax of $8.6 billion, a 13 per cent increase on its 2013 figure. Telstra’s net profit rose 14 per cent from $3.9 billion to $4.3 billion. Others that didn’t do so well included AMP with profit down three per cent and Coca Cola Amatil’s result down 15 per cent.

The Australian Financial Review says earnings per share increased on average by 6.3 per cent last year. The average profit increase would be a little more as the AFR calculation takes into account any new capital raised by companies during the year. 

Of course averages hide a huge range of results from the terrible to the outstanding. BHP’s profit rose 23 per cent, Origin Energy’s surged 40 per cent, Harvey Norman’s net jumped 49 per cent and Lend Lease’s climbed 50 per cent. 

Transfield announced a stunning turnaround from a loss of $254 million last year to a pre-tax profit of $59 million this year. It also forecast a jump to around $250 million pre-tax profit this year. 

On the downside Virgin Holdings reported a much bigger loss of $484 million, up from a $150 million last year. Both figures are the inevitable result of the war for market share between Virgin and Qantas over the last two years. 

The profit increases reported justify the current share prices. Prices are neither expensive nor cheap compared to profits. Shares on average are currently trading at around 15.9 times reported profits according to ASX Research. That is close to the long-term average of just over 16 times.

This means we need to see further increases in profits to justify additional share price rises over the next year. Many companies suggested their profits are likely to increase quite nicely over the next year. 

Business conditions are reasonably good. Interest rates are still at record lows making it easier and more affordable for consumers to finance purchases. It also makes borrowing cheap for companies that are interested in expanding. 

Overseas economies are mostly doing quite well, also a very helpful factor for many companies. While Europe is still struggling for traction the US economy is growing strongly, Britain is doing well, China will still produce seven per cent growth and many Asian countries are doing well. 

At home we still have a few challenges with manufacturing closing due to high costs, new mine development in the doldrums and confidence being slowly eroded by the blockage in the Senate preventing the government passing the budget. 

The current conditions suggest that overseas share markets may do better than Australian share markets over the next year or two. It may be time to consider increasing exposure to international shares instead of local ones. This is easily done using managed funds.

If international economies do do better than ours that might also mean some weakening of the Australian dollar. That of course would boost the value of overseas holdings.