The analysis bore out the common assumption that large firms are typically more profitable than smaller ones.

In financial years ending between 1 April 2003 and 31 March 2004, large firms achieved a median rate of return on capital of 9.6%, compared with 8.4% for medium sized firms, and 6.2% for small firms.

On the other hand, smaller firms tend to carry less debt and saw only modest variations in profitability. Across the three random samples, the median return on capital in 2003/04 was around 8%.

A similar analysis undertaken in 2003 had found that the returns earned by large firms had fallen sharply in the period from 1997/98 to 2001/02.

This reflected the strengthening of sterling during the late 1990s, which slashed profitability for manufacturers, and the global investment slump that followed the dotcom crash.

Both these developments bore down heavily on big companies, while the prolonged consumer spending boom afforded a measure of protection to many smaller businesses.

As well as the gap in returns, there is a significant difference in the experience of small and large firms in terms of indebtedness.

In 2003/04, the median ratio of debt to equity for large firms was in the vicinity of 0.8, compared to around 0.5 for small businesses.

Across the size spectrum it was the same story: the burden of debt in relation to equity rose modestly between 1999/2000 and 2002/03, but was reduced in 2003/04.

More important, with interest rates at historically low levels and profitability recovering, the ability to repay improved. Indeed, for small firms, which generally carry a lower debt burden, median interest cover in 2003/04 was at almost six times profit before tax and interest.