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Corporate Profits
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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
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| Released on
3/30/06
For
Q4 Revised 2005 |
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After-tax Profits, Y/Y change
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| Actual |
38.7%
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| Previous |
35.9
%
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Highlights
Corporate profits rose to a $1.153 trillion annual adjusted rate in the fourth quarter, a new record and well up from already healthy totals of $1.032 trillion in the third quarter and $831.1 billion in fourth quarter 2004 (profits are after tax without inventory and capital consumption adjustments). The fourth-quarter total eclipses $1.040 billion in the second quarter. Note both the third quarter and even the fourth quarter were slightly depressed by hurricanes.
Fourth-quarter data are ancient history for the markets which are focused on first-quarter growth and of course the outlook. Corporate profits are a big strength of the U.S. economy, a long established fact that should be a rising plus for the stock market. Companies begin releasing their first-quarter earnings in mid-April, and early indications point to another very strong quarter.
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Trends
![[Chart]](chart.gif)
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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. 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
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