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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
6/29/06
For
Q1 Revised 2006 |
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After-tax Profits, Y/Y change
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| Actual |
24.1%
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| Previous |
20.1
%
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Highlights
Corporate profits in the first quarter were revised up to 1.260 trillion from the initial estimate of a $1.212 trillion annual adjusted rate in the first quarter. The revised figure boosts the first quarter again to a new record. Corporate profits were $1.153 trillion in the fourth quarter and $1.032 trillion in the third quarter (profits are after tax without inventory and capital consumption adjustments). Note the fourth quarter was slightly depressed by hurricanes.
Although old news, the corporate profits figures indicate that businesses are still fairly flush with cash for both direct investment in structures and equipment & software but also for mergers and acquisitions.
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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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