Corporate profits, as reported by the Bureau of Economic Analysis (BEA), are summarized briefly as the income of organizations treated as corporations in the national income and product accounts. The BEA reports several measures of profits. Profits from current production (corporate profits with inventory valuation and capital consumption adjustment), are also known as operating or "economic" profits. Capital consumption adjustment deals with the differences in depreciation allowances used for accounting and income tax purposes. Inventory valuation adjustment (IVA) deals with the difference in measuring the cost of inventory replacement. Book profits amount to operating profits subtracting out inventory valuation and capital consumption adjustments. After tax profits are book profits after taxes are subtracted. The Econoday reports will focus on after tax profits reported by the BEA, since these are the most relevant.
The corporate profit figures that are derived from the national income and product accounts (NIPA) depend on GDP growth. They don't always move in the same direction or the same magnitude as the profit data reported directly by individual companies or even the S&P 500. Why Investors Care
| Released on 3/29/07 For Q4 Revised 2007 | ||||||||
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Highlights
Corporate profits in the fourth quarter slipped to $1.362 trillion annual rate from the third quarter's record $1.363 trillion. Fourth quarter profits edged down an annualized 0.6 percent, following an 8.7 percent boost in the third quarter. Fourth quarter profits declined for the first time since the 6.5 percent annualized drop in the third quarter of 2005. Profits are after tax but without inventory valuation and capital consumption adjustments. Corporate profits are up 16.0 percent on a year-on-year basis, compared to up 24.3 percent for the third quarter. Today's report clearly reflects the slowing U.S. economy and is indicative that profits will post more moderate gains in 2007.
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Corporate profits are key in the determination of a company's stock price. When corporate profits are rising, then stock prices will likely rise; when profits are falling, then equity prices will probably decline as well. Corporate profits are one of the more volatile series on a yearly basis. Profits are the residual - the left over - from revenues after expenses are taken out - and taxes for after-tax corporate profits. While each component (revenues, expenses, and taxes) is not that volatile, the net is. |
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