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Games people play with cash flow

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Re: Games people play with cash flow

#141

Post by aidenn0 »

valuearb wrote: post #128
aidenn0 wrote: post #51

Earlier quoted context omitted.

We need to tax capital gains as income as well then, because stock-buybacks become a tax-loophole otherwise.

I’m a big fan of taxing both capital gains and dividends at ordinary income rates to help restore fairness and progressivist to the tax code. But to do this you absolutely need to index capital gains for inflation. That’s the reason they get special tax rates in the first place, because when inflation is high a significant part of capital gains are illusionary and you don’t want effective rates to reach over 100% in…

I'm actually fine with effective rates approaching 100% in higher brackets in real use. Inflation is a sunk-cost. If the investor were instead to put their money under their mattress, they have negative real returns, so effective tax rates of 100% would still incentivize investments to offset inflation.

Other than that, I completely agree with you.

Re: Games people play with cash flow

#142

Post by aidenn0 »

CPLX wrote: post #135
aidenn0 wrote: post #127

Earlier quoted context omitted.

> ...that a government can print money and extract any resource it wants from any entity it wants to at any time at the barrel of a gun, and you and your CEO friend can't. This is just factually false. The French government can't extract any resource it wants from California. The US government cannot extract any resource it wants from China. The ultimate limit of what a government can extract value from is the land i…

Yes that’s correct, governments and sovereign states cover specific regions. I’m fairly confident all that information was contained already in the word government.

And a business covers specific private properties. The difference in power and size is quantitative, not qualitative.

Re: Games people play with cash flow

#143

Post by aidenn0 »

count wrote: post #139
aidenn0 wrote: post #127

Earlier quoted context omitted.

> ...that a government can print money and extract any resource it wants from any entity it wants to at any time at the barrel of a gun, and you and your CEO friend can't. This is just factually false. The French government can't extract any resource it wants from California. The US government cannot extract any resource it wants from China. The ultimate limit of what a government can extract value from is the land i…

Literal millennia of warfare says otherwise. Traditionally it's one of the key roles of the state!

I'm not sure how millennia of warfare contradicts "...whatever land and residents it can conquer of its neighbors."

Re: Games people play with cash flow

#144

Post by CPLX »

aidenn0 wrote: post #142
CPLX wrote: post #135

Earlier quoted context omitted.

Yes that’s correct, governments and sovereign states cover specific regions. I’m fairly confident all that information was contained already in the word government.

And a business covers specific private properties. The difference in power and size is quantitative, not qualitative.

That's just utterly false. The ability to print currency and the maintenance of a monopoly on the legal use of violence are extremely qualitative differences between the powers of businesses and sovereign states.

It's like comparing apples and oranges. Or accounts receivable departments and nuclear weapons.

Re: Games people play with cash flow

#145

Post by aidenn0 »

CPLX wrote: post #144
aidenn0 wrote: post #142

Earlier quoted context omitted.

And a business covers specific private properties. The difference in power and size is quantitative, not qualitative.

That's just utterly false. The ability to print currency and the maintenance of a monopoly on the legal use of violence are extremely qualitative differences between the powers of businesses and sovereign states. It's like comparing apples and oranges. Or accounts receivable departments and nuclear weapons.

I don't see the difference between issuing more stock and printing more money. Of course you can do it, but the value of what you get goes down.

As far as a monopoly on the legal use of violence goes:

1. I don't see how this makes a big difference in the question of financial solvency. Sure you can use violence to acquire more property (and the threat of violence to renegotiate terms with your creditors), but the amount of property you can acquire this way is bounded, so from an accounting point of view, the ability to do so is merely just another asset. Obviously it makes a big difference in terms of morals, externalities, &c. but at the end of the day, you either have or do not have enough resources to service your debt.

2. From the point of view of the victim, it doesn't really matter if the violence used against them is legal or not, only the extent of their injuries. From the point of view of the aggressor, it doesn't matter if the violence they wield is legal or not, it just matters if they think the consequences will be less than the gain.

Re: Games people play with cash flow

#146

Post by valuearb »

aidenn0 wrote: post #141
valuearb wrote: post #128

Earlier quoted context omitted.

I’m a big fan of taxing both capital gains and dividends at ordinary income rates to help restore fairness and progressivist to the tax code. But to do this you absolutely need to index capital gains for inflation. That’s the reason they get special tax rates in the first place, because when inflation is high a significant part of capital gains are illusionary and you don’t want effective rates to reach over 100% in…

I'm actually fine with effective rates approaching 100% in higher brackets in real use. Inflation is a sunk-cost. If the investor were instead to put their money under their mattress, they have negative real returns, so effective tax rates of 100% would still incentivize investments to offset inflation. Other than that, I completely agree with you.

You are right about the sink cost, but ignoring a very real risk. Taxing capital gains to the point where the investor has negative returns drives capital offshore to places where it will be taxed far less or not at all. It turns honest citizens into tax cheats, and we already have too many of those.

Re: Games people play with cash flow

#147

Post by contingencies »

brixon wrote: post #82
nickreese wrote: post #26

Most useful article I've read probably this year. After selling our last company I was surprised that the acquirer went on an even bigger spending spree just months after acquiring us. As a bootstrapper this blew my mind. This article helps shine a light on how they pulled it off. They acquired us for the free cashflow the company threw off (uncommon in our industry) and the leveraged that to further their expansion.…

The Accounting department is usually backwards facing. The Finance department is usually forwards facing.

Added to https://github.com/globalcitizen/taoup

Re: Games people play with cash flow

#148

Post by mpmpmpmp »

fairity wrote: post #130
dalbasal wrote: post #59

Earlier quoted context omitted.

I don't think he's presenting a dichotomy at all, false or otherwise. To paraphrase heavily, he's delving into the fact that these are simply different things. Profit, free cash, EBITDA, etc. These have different implications. Particularly, they translate into capital very differently. Ability to borrow. Ability to raise equity. Pay dividends. This translates into radically different trajectories and outcomes. In 202…

> Outside of accounting, there's a tendency to dismiss this nuance as trivial and convergent in the long term. In reality, the future never comes. It's always the present. So long as you're running a profitable business, cash flow management does seem to be a pretty trivial problem. The difference between positive and negative float is just a loan. And, if you can show a bank that cash is guaranteed to come in at a f…

There is no such thing as "cash is guaranteed to come in at a future date". Counterparty risk is pretty much impossible to remove, only to trade away to another party.

Re: Games people play with cash flow

#149

Post by dalbasal »

fairity wrote: post #130
dalbasal wrote: post #59

Earlier quoted context omitted.

I don't think he's presenting a dichotomy at all, false or otherwise. To paraphrase heavily, he's delving into the fact that these are simply different things. Profit, free cash, EBITDA, etc. These have different implications. Particularly, they translate into capital very differently. Ability to borrow. Ability to raise equity. Pay dividends. This translates into radically different trajectories and outcomes. In 202…

> Outside of accounting, there's a tendency to dismiss this nuance as trivial and convergent in the long term. In reality, the future never comes. It's always the present. So long as you're running a profitable business, cash flow management does seem to be a pretty trivial problem. The difference between positive and negative float is just a loan. And, if you can show a bank that cash is guaranteed to come in at a f…

This is exactly the fallacy this article is challenging. It is simply not true in business reality, whatever the chalkboard fungibilities.

The difference between a positive and negative float is a structural difference that has long reaching implications. On that chalkboard, the difference between a publicly listed company and a family owned business is trivial or esoteric.. best explained by portfolio theory or somesuch. Sometimes abstractions miss the point.

Re: Games people play with cash flow

#150

Post by dalbasal »

mpmpmpmp wrote: post #148
fairity wrote: post #130

Earlier quoted context omitted.

> Outside of accounting, there's a tendency to dismiss this nuance as trivial and convergent in the long term. In reality, the future never comes. It's always the present. So long as you're running a profitable business, cash flow management does seem to be a pretty trivial problem. The difference between positive and negative float is just a loan. And, if you can show a bank that cash is guaranteed to come in at a f…

There is no such thing as "cash is guaranteed to come in at a future date". Counterparty risk is pretty much impossible to remove, only to trade away to another party.

Or said another way, the model is not reality. It is a way of reasoning about reality, approximate reality, etc. Reality is not arbitrage-able without artifacts.
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