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 9/27/07 For Q2 Revised 2007 | ||||||||
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Highlights
Corporate profits in the second quarter advanced to a revised $1.441 trillion annual rate from the first quarter's $1.363 trillion and was down slightly from the prior estimate of $1.444 trillion for the second quarter. Second quarter profits advanced an annualized 25.0 percent, following an 8.2 percent annualized increase in the first quarter. Profits are after tax but without inventory valuation and capital consumption adjustments. Corporate profits are up 4.3 percent on a year-on-year basis, matching the pace in the first quarter.
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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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