Skip to content

On profits

Profit and profit margin are two of the key measures of business. However, should they be important in this time? In classical economics, long-run profit = 0 in an efficient market. Clearly we are not turning towards a classical free market model in any way, shape, or form, but there’s a message in this idea we should pay attention to. While I am likely to be denounced as a socialist, perhaps what the market needs as part of this correction is an expectation of lower profit returns.

Way back in the halcyon days of the 20th century stocks were valued based on the cash that flowed out of them directly to shareholders. In other words, profits were returned to the shareholders regularly. However in recent times the number of stocks that return regularly dividends to shareholders has dropped. Profits are kept within the corporation; used for share buybacks or one-time dividends, investments, a hedge against downturns, empire building or maybe the occasional smart acquisition.

What happens now when the market dips (and let’s remember that there should be no profits in the mythical classic free market) that corporations lay off employees, reduce investments, or otherwise cut costs. Some of this is smart. No one would argue that GM and Ford have severe problems and are going to sell fewer cars in the future. But what about otherwise highly profitable companies?

The TechCrunch Layoff Tracker is littered with profitable and successful companies. Companies like Google, Electronic Arts, Microsoft, Citrix and hundreds more have been laying off hundreds of thousands of employees. I’m not soft-hearted enough to argue that every job needs to be maintained, or that there are underperforming workers that perhaps should have been let go years before. Perhaps the smart companies are the ones that make small cuts of right-sizing or business line closures to avoid the big ones. What I question is when the “market” demands moves to keep profits up. Why should companies expect to preserve historic levels of profitability in a recession? They shouldn’t. Managers and shareholders should ask that question the next time they look to cut their workforce.

{ 5 } Comments

  1. Lien | September 3, 2014 at 7:04 pm | Permalink

    A good pair of custom socks can be worn at a formal
    gathering or while taking in a ball game. Struggle no more, Canadian company Geekware have
    a wide range of irresistible gifts that geeks will
    give their PCs for, and what’s more, they’re all environmentally friendly.
    Corporate gift ideas are freely and widely available
    throughout.

  2. Ionut | December 20, 2015 at 3:13 pm | Permalink

    Tanner, Thank you so much!Your Slack Adjuster is awesome! I am on the verge of reslaeing a series of tutorials on bookbinding methods which can’t be found in other bookbinding books these have been personally developed by me thru years of trial and error. I definitely need to work this into my funnel! I never gave serious thought to the potential of offering high priced one on one coaching . Wow! Did this not ever show me the error of my thinking!Thanks again, Leslie

  3. http://www.themindstylecompany.com/ | April 30, 2016 at 6:20 pm | Permalink

    Thank you, I’ve just been searching for information about this subject for a long time and yours is the greatest I have found out so far. But, what concerning the bottom line? Are you positive about the source?

  4. auto insurance | May 15, 2016 at 6:30 pm | Permalink

    errrrr…. did you read my Tunnel Vision post? I have doubts about myself ALL the freaking time. January was SO slow for me too. I’ve no idea why or how – I know I missed out on some advertising spots, I know I was self-centered in some projects… But I know it will pick up.

  5. car insurance | June 4, 2016 at 10:29 am | Permalink

    have some problems with display categories in Cyrillic, how to correct?ex.Ð�конкиa bla bla bla!!!Thanks.

Post a Comment

Your email is never published nor shared. Required fields are marked *