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 6/26/08 For May 2008 | ||||||||
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Highlights
Corporate profits in the first quarter were revised down to $1.314 trillion from the initial estimate of $1.329 trillion annualized and were notably lower than the fourth quarter's $1.426 trillion. First quarter profits were down an annualized 27.8 percent, following a 4.4 percent annualized boost in the fourth quarter. Profits are after tax but without inventory valuation and capital consumption adjustments. Corporate profits are down 3.6 percent on a year-on-year basis, compared to up 6.6 percent in the fourth 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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