42
votes
What does "not touching the principal" actually mean?
"Not touching the principal" simply means that you leave the principal amount of the trust fund alone and only draw off the interest or dividends it accrues.
So, let's say you inherit $10 ...
- 5,330
36
votes
If a company that doesn't pay dividends makes a large profit, where does it go?
It doesn't go anywhere. It stays in the company as undistributed profit.
If the company has too much cash and no opportunities to invest it in further growth, it can be harmful to the company's ...
- 774
26
votes
What does "not touching the principal" actually mean?
There are four problems with your logic.
First, interest rates are low now but they haven't always been. And you get more interest with "locked in" savings like CDs. So what you see offered ...
- 12.6k
19
votes
Where can publicly traded profits go but to shareholders via dividends?
If a company earns $1 Million in net profit (let's say all cash, which is not entirely realistic), it can do one of three things with it:
Invest it back in the company (by buying more assets to ...
- 125k
19
votes
Accepted
Are dividends exclusively a part of earnings?
In the end it comes out of earnings, but the earnings don't have to be made that financial year. So yes you can pay dividends despite negative, zero or low earnings in a specific year. This can be a ...
- 997
18
votes
Are dividends exclusively a part of earnings?
Cash dividends are paid from the company's cash on hand. It doesn't matter where that money comes from. You might have earned it that year, previous years, or (rarely and foolishly) borrowed it or ...
- 50.1k
18
votes
Accepted
Why would being acquired lead management to not issue guidance or field questions?
Until an acquisition is closed, the flow of information from the target company can and should be restricted to the agreed due diligence items and to SEC filings including the 10-Q. Extraneous ...
15
votes
What does "not touching the principal" actually mean?
You are quite wrong in your stock market example. Let's say I have $1 million invested, and since I am not an active investor, the money is in mutual funds. So my principal is $1 million. In an ...
- 11.1k
14
votes
If a company that doesn't pay dividends makes a large profit, where does it go?
They may keep the cash sitting in a bank somewhere as a cash reserve. They may invest it in stocks or bonds in other companies or in government units. They may invest in new factories or equipment. ...
- 22k
10
votes
What does "not touching the principal" actually mean?
In such a situation, someone’s talking about not reducing the starting total value. If an investment appreciates, then you sell some of it, you may still maintain at least the same base value you ...
- 377
8
votes
Accepted
Better way to calculate earning growth rate to have quick glance on company earning quality
Your formula for compound growth is slightly off:
|*****|
(EPS in year 2017 / EPS in year 2013) ^ (1/4) - 1
= (6.00 / 1.00) ^ (1/4) - 1
= 1.565 - 1 = ...
- 125k
7
votes
Why do companies have a fiscal year different from the calendar year?
My grandfather owned a small business, and I asked him that very question. His answer was that year-end closeout is very time-consuming, both before and after EOY (end of year), and that they didn't ...
- 50.1k
6
votes
Why don't companies underestimate their earnings to make quarterly reports look better?
Stating poor estimates in advance will lower your share price to compensate for thge extras boost it gets later ... And may run afoul of stock manipulation laws. More pain than gain likely.
- 39.7k
6
votes
What does "not touching the principal" actually mean?
Another example is rise in stock market price - but that does not make sense either. If one has 10 shares of company XXX, even if XXX stock price doubles every year one would still have to sell shares ...
- 545
5
votes
Accepted
Why do public companies give guidance in quarterly reports?
Basically, because people want it. Shareholders like frequent updates because they like to keep tabs on how their money is doing.
I haven't read the latest op-ed by Buffett and Dimon, but the idea ...
- 23.9k
5
votes
Does a company's stock price give any indication to or affect their revenue?
No. Revenue is the company's gross income. The stock price has no contribution to the company's income. The stock price may be affected when the company's income deviates from what it was expected ...
- 48.9k
5
votes
How do you compare the sales of a company like Coca Cola against another company like JPMorgan Chase to figure out the best investment opportunity?
The question isn't sales but profits. Banks traditionally profit by making loans. Just as with a physical product, there are costs involved, income produced, and the difference between the two is ...
- 39.7k
5
votes
What's stopping a company from intentionally reporting poor guidance to tank the stock and enabling them to buy-back shares at a massive discount?
The Securities Exchange Act of 1934 formed the SEC and granted it the power to oversee all securities as well as the markets, the conduct of brokers, dealers, and investment advisers as well as the ...
- 75.5k
5
votes
In the context of corporate profits, what does "back-half" mean?
The back half of the year is the latter half, Q3 and Q4. In the Clorox case, it refers to a fiscal year.
- 29.3k
5
votes
Do corporate executives have a fiduciary duty to maximize the value returned to investors?
In the United States, there's an abstract duty act in for the profit of stockholders, but there's no duty to do anything specific. Donations to charity are specifically allowed, for instance. (See AP ...
- 51
4
votes
Why don't companies underestimate their earnings to make quarterly reports look better?
You need to distinguish a company's guidance from analysts' estimates.
A company will give a revenue/earnings guidance which is generally based on internal budgets. The guidance may be aggressive or ...
- 1,672
4
votes
Accepted
Understanding corporate earnings manipulation
Imagine that I run Justin's Lawnmowing Inc. In the first year of operation I make $1,000. I spend $100 on gas and other consumables to run my lawnmowers. I also spend $1,200 on a new lawnmower for ...
- 25.1k
4
votes
In the context of corporate profits, what does "back-half" mean?
Since the company had reported results for the first half of the fiscal year (Q2 results), the rest of the year would be the "back half". So "back half" sales would be sales in ...
- 25.1k
4
votes
Do corporate executives have a fiduciary duty to maximize the value returned to investors?
It doesn't matter in reality if they are legally required to (maximize it), because the way to maximize it is not strictly defined.
Maximize for the next dividend? Or for the next year? Or for the ...
- 37.5k
4
votes
Accepted
How can company show a profit before income tax, but then lose money after income tax?
Income for tax purposes is calculated in a very specific way, based on local tax law, which very often differs from accounting standards, and often by large amounts.
Realistically, there are a whole ...
- 41.4k
3
votes
Accepted
Does a company's stock price give any indication to or affect their revenue?
Most of stock trading occurs on what is called a secondary market. For example, Microsoft is traded on NASDAQ, which is a stock exchange. An analogy that can be made is that of selling a used car. ...
- 2,219
3
votes
Does a company's stock price give any indication to or affect their revenue?
Look at the how the income statement is built. The stock price is nowhere on it. The net income is based on the revenue (money coming in) and expenses (money going out).
Most companies do not issue ...
- 3,997
3
votes
Accepted
Earnings Calendar Fiscal Quarter Ending
Why do stock markets allow these differences in reporting?
The IRS allows businesses to use fiscal calendars that differ from the calendar year. There are a number of reasons a company would choose ...
- 67.9k
3
votes
As a contractor, if my business makes no net profits, do I owe taxes?
So the main reason that you aren't getting answers is that the question is not really answerable on this site without putting a lot of details about the expenses of your company online. Even then you ...
- 6,590
3
votes
Where can publicly traded profits go but to shareholders via dividends?
Apart from investing in their own infrastructure, profits can be spent purchasing other companies, (Mergers and Acquisitions) investing in other securities, and frankly whatever they please.
The idea ...
- 32.6k
Only top scored, non community-wiki answers of a minimum length are eligible