Was corporate profit growth a bubble inflated by "financial engineering"?

Post by grecy » Sat, Mar 28, 2020, 12:15 AM UTC

TeMPOraL wrote: post #175

bawana wrote: post #172

Earlier quoted context omitted.

"CEO pay is usually an insignificant fraction of a company's revenue" What is insignificant? For example, the CEO of Aetna walked away with 500million. That's money that should have gone to insured, injured and sick people. What risk did he take that exceeded the risks of the children we sent to Afghanistan and Iraq?

Well, according to [0], Aetna's revenue in Q3 2018 was $15.5 billion - so, extrapolating, their yearly revenue was something on the order of 60 billion dollars, of which that 500 million you mention is just 0.8%. Also, some of that $500M is in stock, not cash. -- https://www.modernhealthcare.com/article/20181030/NEWS/18103...

Post by LeoTinnitus » Sat, Mar 28, 2020, 3:16 AM UTC

darawk wrote: post #73

LeoTinnitus wrote: post #6

It's certainly more nuanced than that. However, it does point out the fact that corporations focus too much on shareholder value as opposed to just making a good business system...except for the major players that is. These the so called "too big to fail" types of companies which borderline monopolize market sectors like Amazon and Walmart. But they don't care during recessions because they're fine. They essentially…

> These the so called "too big to fail" types of companies > which borderline monopolize market sectors like Amazon and Walmart. It's somewhat interesting that when coming up with a list of two 'monopolist' companies, you came up with two companies that compete directly.

Post by Jommi » Sat, Mar 28, 2020, 6:06 AM UTC

grecy wrote: post #161

TeMPOraL wrote: post #157

Earlier quoted context omitted.

> They could price their products so they don't make any "extra" money each year Isn't that precisely what you get from competitive pressure in a free market? Things end up priced barely above production costs. > I think we'd live in a better world if a company like Apple didn't exist to make ever increasing profits, but existed just to create the products they create. That would be a nicer world to live, true. Unfor…

> 't that precisely what you get from competitive pressure in a free market? Things end up priced barely above production costs. Evidently no. Companies are making hundreds of millions in profit every ear, they're paying their CEOs tens of millions as a "bonus". They're they're making a lot, LOT more than just "barely above production costs"

Post by H8crilA » Sat, Mar 28, 2020, 10:52 AM UTC

ksdale wrote: post #159

H8crilA wrote: post #123

Earlier quoted context omitted.

If, over the long term, CAPEX spendings do not produce profits, it means that the purchased assets did not produce enough payoff to compensate for their depreciation charges. You could argue with the accounting depreciation rules (i.e. how much needs to be written off per year, i.e. you think the asset is longer lived than the accounting rules say), but the general idea stands - it is a sign of bad capital allocation…

If the profits from the CAPEX just get plowed into more CAPEX, though, you could end up looking like you don't have profits for decades, and it isn't necessarily a problem as long as you're growing. Edit: What I'm saying is that profit is a lagging indicator of CAPEX, and your lack of profit now could be the result of bad CAPEX 5 years ago, or good CAPEX 5 years ago, plus aggressive new CAPEX now.

Post by grecy » Sat, Mar 28, 2020, 3:59 PM UTC

Jommi wrote: post #185

grecy wrote: post #161

Earlier quoted context omitted.

> 't that precisely what you get from competitive pressure in a free market? Things end up priced barely above production costs. Evidently no. Companies are making hundreds of millions in profit every ear, they're paying their CEOs tens of millions as a "bonus". They're they're making a lot, LOT more than just "barely above production costs"

I really dislike seeing comments like this on HN, just utter lack of foresight into just the basics of economics or even just commenting. What "companies" are you talking about? What does CEO pay have to do with the subject at hand?