Corporate profits today are very very low. They are unsustainably low. They must be boosted or the corporations will crumble.
Today:
US 10-Year Treasuries pay 3.875%
US Corporations borrow at just over 5.09%
But globally, corporations are making just 4.66%.
How does one pay a 5.09% loan by investing in assets (factories, office-space, computers etc.) and making only 4.66%?
You can’t.
You can’t, it is impossible and It would make more sense to sell one’s assets and lend-out the money.
Banker: “If I make a business loan today. I can bundle it with other loans and sell it for 5.09% so . . . any loan I make must be at a higher rate than that.”
.
.
. New/expanding businessman: “If borrow money to buy computers and office space and stuff, after hiring employees and paying them, I’ll make only 4.66% on the assets I bought so . . . I cannot take the loan. I will not open or expand my business.”
Businessman operating an ongoing business: “Even though I am 100% debt free, if I keep my business open, I will make only a 4.66% return on all the business’s assets. But if I close the business and sell the assets I’ll make 5.09% by putting the money in corporate bonds (or 3.875% tax-free in gov’t bonds). I am not an idiot. I am going to close the business and invest in bonds.”
What would you say about a company with a market cap of 4.5B, EPS of -2.88, EBITDA of -110M, net profit margin of -10,000+%, and return on equity of -8.6%?
Anyone care to tell me corporations are making too much profit? They are earning economic rents? They need to be broken up? They are gouging the consumer? They are under-paying their workers? They should pay more taxes?
Today it costs more to borrow money than businesse make (on average) from whatever they spend it on.
If it’s always gonna be like this, the economy is doomed. Maybe we need more consumer spending, like . . . Americans are saving too much, borrowing and spending too little?
Unlikely because of housing costs. Im not one of those people that believes higher consumer spending is always good but that doesnt appear to be an issue.
If your company is publicly traded, look up its return on assets.
Some types of industry don’t need a lot of assets. (Video streaming service.)
Some do (windmill factory, EV plant etc,)
Those who do need assets are in so much trouble the economy-wide picture is very very bleak. They’d be better-off closing down and investing the money they get elsewhere. Fortunately, even for them, it is only a snapshot.
Wait, are corporations hoarding cash or are they using it for buybacks?
Make up your mind.
Oh I get it.
You did not look up any facts or figures.
You didn’t even think about any you heard recently.
You just imagined what would make your political ideas look right imagined that to be the case, now you’re passing that off as fact.
Is that it?
Im just looking at my own prospects and its dramatically improved. Its almost like the stock market is a market of stocks and gambling and if i wanted to learn more about actually running businesses i wouldnt ask a glorified gambler, i’d ask my manager. We’ve had so much business my manager had to hire a couple of temps at least. Feels good man.
But a company’s ROA is not about the stock market.
ROAs are bad men’s the underlying company is (in a temporary snapshot sorta way) doing badly.
Sometimes the market price reflects that sometimes it does not.
That is just one of the reasons stock prices are not a good economic indicator.
So what do you think about the fact that a broad swath of the largest companies earn so little on the assets at current? (Not even enough to stay in business if this were a long-term thing)
Does that mean the economy is good or bad?
Does that mean corporations are greedy and earning too much?
