How do business run if they don't make profit?

[Train]

This.

If you really study most major Corporation's annual Fiscal reports, you will find that Bonuses, Stock Options, acquisitions, and the like typically far exceed their "losses".

Which is why corporate tax should be dropped to 0%, if the company reported a profit, they would have to

1) pay corporate tax
2) pay that profit to owners, who then again pay tax.

Why not jump directly to step 2 and stop being taxed twice?

 

[GWestphal]

Do you think said people would be amendable to being taxed at 40-50%? Otherwise, it doesn't seem to be an equivalent system. Pass through taxation isn't bad in my opinion, but then that's why we have LLCs, right?

 

[Mandres]

Accountants don't "lie" (usually) but you have to understand that the rules for financial reporting are extremely complicated and not intuitive.

A company can easily end the year with big revenues, thousands of happy customers and shareholders, more cash in the bank than the beginning of the year and still have negative income. Hell, they'd prefer to always have negative income (since that what taxes are based on).

Unless you "speak" accounting and know how to analyze a financial statement then you can't make assumptions about the health of a firm based on a few year's worth of net income figures.

 

[TuxDave]

Those tax credits are only good assuming you actually make profit though, right? And they are only good for a certain number of years, so is it just a critical mass in the bank that is letting a company operate without actually making any money?

You can't run with long term loss but if you think that your loss is short term (short doesn't mean a month or two) and you can turn a profit in the long term, it's sometimes more economical to do something and minimize loss in the short term.

 

[rchiu]

Company release 3 thing. Income statement, balance sheet, and statement of cash flow.

The answer to your question is in the statement of cash flow. The losses company states in the income statement can be real losses, or book losses (losses appear on the book but doesn't impact real operations). The bottom line is how much cash company has in the beginning of the year, how much it has by the end of the year, and if they have enough cash to stay in business. All that is in the statement of cash flow.

 

[OverVolt]

Especially in Japan. Coming soon to: America.