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

[GWestphal]

I was reading a blurb on Sony. So, they posted $200M Q2 losses, and last year they posted $5.7B in yearly losses.

So, do they just have enough money in the bank to keep them afloat? How does a business survive if it isn't at least breaking even or posting small profits?

If Sony reached $0 in the bank, and posted operating losses, would that be the end of the ballgame for them?

I understand that their losses can be credited against past and future taxes, but still if a company hasn't turned profit in 10 years, presumably they haven't returned dividends, right? Perhaps stock price has increased over time, but that seems unlikely if the company is reporting consistent losses. Why aren't investors just fleeing?


Start: $1B in bank (VC+IPO)
Year 1: Net loss $200M, $800M in bank, $200M future tax credit

Year 2: Net loss $200M, $600M in bank, $400M future tax credit

Year 3: Net loss $200M, $400M in bank, $600M future tax credit

Year 4: Net loss $200M, $200M in bank, $800M future tax credit

Year 5: Net loss $200M, $0M in bank, $1B future tax credit

Year 6: ???

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?

 

[momeNt]

As long as they can service their debt and they are getting credit in some form or another, people will continue to invest. They go out of business when they begin to default on obligations.

A company doesn't need the money "in the bank" to keep it afloat, they just need enough money at their disposal, so that would include very liquid instruments as well as longer term debt.

 

[rommelrommel]

Sony also likely has a ton of physical and intellectual assets.

 

[ElFenix]

simple: accounting is just another name for lying.

united airlines didn't make a profit for a decade (billions of $ in losses) yet somehow the assholes bought continental, an airline which had been mostly profitable for the last decade.

 

[Miramonti]

Use debt to pay debt.

 

[Texashiker]

Stockholders make up the difference.

Need a few billion? Just make dump more stock on the market.

 

[Red Squirrel]

What amazes me is companies that go months or even years in loss. You'd think after the first sign that there is no profit coming in, they'd do something about it. Like the big 3 that needed a bail out, how in the world do you go YEARS in the hole and not change something to save money, or do something to make more.

 

[Red Storm]

What amazes me is companies that go months or even years in loss. You'd think after the first sign that there is no profit coming in, they'd do something about it. Like the big 3 that needed a bail out, how in the world do you go YEARS in the hole and not change something to save money, or do something to make more.

You see it in individual people, so it would be more difficult and time consuming to change an entire company. Not that it can't be done, you just need the right people.

 

[SKORPI0]

Here's the Federal part of the US gov't for example.
Amazing that they can still "operate" despite the huge losses every year.

 

[yllus]

As long as people have belief that the company will provide them back value/hard currency for money they invest/loan, a company can stay in the red forever.

An examples of how this system works out for everyone's benefit: Cable companies up here in Canada were heavy with losses for a full decade while they spent gobs of shareholder money to lay lines all over the country. Finally as those systems starting coming online and subscriber money poured in, they were vindicated and investors made a very healthy profit.

The only alternative is government financing which I think we can all agree is an area best avoided if at all possible.

 

[ImpulsE69]

As long as they can get money from somewhere, they can survive.

Look at how many years Amazon was losing millions and look at them now.

Look at the automobile industry, failing for years, then bailed out by the government (or..rather the taxpayers).

A company CAN turn around if they learn from their mistakes, just many don't.

 

[yllus]

A company CAN turn around if they learn from their mistakes, just many don't.

It often is the actual business plan. YouTube had incredible annual losses for years and only in recent times turned that around into profits.

 

[GWestphal]

Not to make this political, but if government is running just like the private sector or vice versa...Why do some people have an issue with deficit spending? They say the private sector can do it better, but it seems like the private sector is doing it the exact same way, no?

Bank+Unvalued Assets (physical, IP) + Belief (Too big to fail, Big Market Share etc) = Longevity?

 

[NikolaeVarius]

As long as they can get money from somewhere, they can survive.

Look at how many years Amazon was losing millions and look at them now.

Look at the automobile industry, failing for years, then bailed out by the government (or..rather the taxpayers).

A company CAN turn around if they learn from their mistakes, just many don't.

Large companies have a hard time "learning" from mistakes. Sony is a global corporation. Tons of subsidiaries, tons of factories and beauracracy.

They've been doing pretty good unifying their services and cutting costs like crazy.

 

[mmntech]

Not to make this political, but if government is running just like the private sector or vice versa...Why do some people have an issue with deficit spending? They say the private sector can do it better, but it seems like the private sector is doing it the exact same way, no?

Private businesses have plans to get out of debt or they fail. Governments don't.

 

[Train]

As long as they can get money from somewhere, they can survive.

Look at how many years Amazon was losing millions and look at them now.

Look at the automobile industry, failing for years, then bailed out by the government (or..rather the taxpayers).

A company CAN turn around if they learn from their mistakes, just many don't.

Amazon is a little different, they weren't really losing millions, they were reinvesting millions. Had they decided to pay out dividends, they would have been seen as a hugely profitable company. But then they wouldnt have things like their own cloud hosting services, which is turning into a cash cow on its own.

 

[rivan]

simple: accounting is just another name for lying.

united airlines didn't make a profit for a decade (billions of $ in losses) yet somehow the assholes bought continental, an airline which had been mostly profitable for the last decade.

This, precisely.

They have awesome accountants and a major interest in reporting huge losses to minimize their tax burden.

 

[Phoenix86]

They just write it off!

 

[jupiter57]

simple: accounting is just another name for lying.

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".

 

[GWestphal]

Private businesses have plans to get out of debt or they fail. Governments don't.

If Sony has turned profit in a decade, it doesn't seem like they have much of plan and if they do it sounds like it will take the better part of decade to implement, doesn't seem that different from government proposals to cut the deficit and reduce the debt.

 

[SlowSpyder]

If Sony has turned profit in a decade, it doesn't seem like they have much of plan and if they do it sounds like it will take the better part of decade to implement, doesn't seem that different from government proposals to cut the deficit and reduce the debt.

Yea, but it is a bank's or private investor's choice to invest in Sony. Even if they had losses for 15 years, I could still choose ('choose' being the key word) to invest in that company, or choose not to. Government seems to make the decision for me, regardless of what I feel.

 

[dmcowen674]

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

They used to have to until they took control of the Government.

Now it's all a scam.

 

[tokie]

It's called temporarily minimizing losses bro.

 

[aaksheytalwar]

Accounts lie as some other people said. You just show losses to not pay tax.

 

[soulcougher73]

What a great system we have set up :whiste: