US: Corporate Profits

Wed Mar 28 07:30:00 CDT 2018

Actual Previous
After-tax Profits - Y/Y change -6.0% 9.8%

Going into 2018, corporate profits weren't getting any tax-related boost. After-tax corporate profits fell a year-on-year 6.0 percent in the fourth quarter to $1.68 trillion compared to a 5.8 percent decline on a pre-tax basis to $2.13 trillion. Profits are after tax without inventory valuation or capital consumption adjustments.

Corporate profits are derived from the national income and product accounts and are expressed in several measures. Econoday's focus is on the most relevant measure for the total economy, after-tax profits.

Corporate profits are the lifeblood of investment spending. Profits are the income of a corporation. When profits are strong, then companies will be able to increase their capital spending. This could allow better growth prospects for a company and is likely to increase its underlying value. When corporate profits decline, then capital spending tends to decline. Without the potential for growth, a company could be at a disadvantage, particularly in our global economic environment.

Corporate profits also reveal the health of an organization. When a company's profits are anemic during economic expansion, it suggests that the company is not performing efficiently. The value of an inefficient company is determined by its stock price. Thus weak profits signal lower stock prices. When a company's profits are relatively strong, even during an economic downturn, it usually means that the organization is well-managed. The higher value for this type of company is reflected in a higher stock price.