Econoday Report: Corporate Profits 30, 2005

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Corporate Profits

Definition
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 3/30/05 For Q4 2004

After-tax Profits, Y/Y change
Actual	6.8%

Highlights
Year-on-year after-tax corporate profits rose a preliminary 12.2% in the fourth quarter vs. the third quarter, at a seasonally adjusted annual rate of $762.1 billion (the figure excludes inventory and capital consumption adjustments).

Year-on-year, the rate is up a less sharp 6.8%. Third-quarter profits were depressed by the period's string of hurricanes.

Corporate profit data, which lag company reports and Wall Street estimates, are not market-moving, but they do confirm that corporate health, thanks to strong demand and high worker productivity, remains strong.

Trends

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. Notice that the overall level of profits was not very different from 1997 to 1998, but the year-to-year change was quite dramatic. Usually, the stock market will react to the year-to-year change in profits.

Data Source: Haver Analytics

2005 Release Schedule

Released On: 3/30 5/26 6/29 8/31 9/29 11/30 12/21

Released For: Q4 Q1 Q1 Q2 Q2 Q3 Q3