YAHFT: Profit And You

[GasX]

Yet Another High Finance Thread: Profit And You.

I. In a capitalist society, a business exists to make money. If it makes a product that there is a high demand for and it competes succesfully against its peers it will do well. By "well" I mean the company will earn a profit on the gods and or services it has provided to its customers.

II. Success in the market place depends on several factors including price, added value, capacity, support, etc...

III. A company that competes on price often has a low profit margin as it seeks to maximize gross profit through high volume of sales.

IV. Conversely, a large profit as a percent of revenue is often a reflection of the value that a company provides its customers. For example, taking a pile of sand and turning it into computer chips adds a lot of value which is why a pound of CPUs is worth more than a pound of sand. Companies that provide better products often charge more than their peers and earn a profit per sale.

IV. A company that can compete on both price and value will typically do very well as it reaps the benefits of having both high profit per sale AND a high volume of sales.

V. A company that earns a profit is one that can afford to provide a return on investment to its investors as well as fund future growth and development.

VI. A company that fails to earn a profit will lose money and will eventually go out of business.

Conclusion: When a publicly traded company publishes a positive earnings report, it means that it has provided many satisfied customers with value and is currently enjoying success. It does not denote some sort of evil master plan to rip-off and fleece the world.

 

[DaWhim]

what's the point here?

 

[ElFenix]

i think he's trying to head off the exxon bashing that will probably go on today.


anyway, a company that has a profit doesn't need to fund future growth and development. if you don't want management stealing money from shareholders, all the profit, (indeed, any excess money) should be paid out to shareholders.

 

[jhu]

down with exxon. actually, down with oil in general. when are we going to start utilizing that shale in colorado?

 

[GasX]

Originally posted by: ElFenixanyway, a company that has a profit doesn't need to fund future growth and development. if you don't want management stealing money from shareholders, all the profit, (indeed, any excess money) should be paid out to shareholders.

That depends on the industry. In a rapidly advancing industry, R&D investment is vital. A tech company or drug company that does not reinvest is doomed. In an industry that is more mature, reinvestment is less crucial. A ladder is pretty much a ladder, so a ladder company probably does not spend a whole lot on R&D.

This is why dividend rates on tech companies are so low compared to companies that provide more stable products and services.

 

[Jzero]

I feel that I am entitled to any product I want at the price that I choose to pay.

 

[CPA]

Originally posted by: ElFenix
i think he's trying to head off the exxon bashing that will probably go on today.


anyway, a company that has a profit doesn't need to fund future growth and development. if you don't want management stealing money from shareholders, all the profit, (indeed, any excess money) should be paid out to shareholders.

huh?

 

[DigDug]

"It does not denote some sort of evil master plan to rip-off and fleece the world."

No, but at some point corporate foresight will also begin to accept an additional premise, namely that of public relations. Companies who, in making decisions, take into account the the percieved social effect of their actions, stand to gain more in the long run, I believe. The public is *slowly* but surely wising up to these things. Firing legions of workers during a year of record profits, provide better short-term numbers, but may well result in long-term losses.