41

"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 million that is invested and earns 7% annually. You can use the $700,000 in interest earnings to live on without dipping into the original $10 million. If you ...


36

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 return on equity. Therefore typically the company will sooner or later choose to distribute it to shareholders either in the form of (regular or extraordinary) ...


25

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 in your savings account may be low, but that's not the only option. Second, when you have the kind of money that supports trust fund children, you have a wealth ...


19

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 generate future profits or paying off debt to reduce interest expense) Distribute it to shareholders (dividends, stock buyback) Do nothing (keep it as cash) On the ...


19

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 strategic consideration of the company called dividend continuity. This is based on German Law (§ 150 AktG), but should be applicable elsewhere as well.


18

It has got to do with market perceptions and expectation and the perceived future prospects of the company. Usually the expectation of a company's results are already priced into the share price, so if the results deviate from these expectations, the share price can move up or down respectfully. For example, many times a company's share price may be beaten ...


18

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 retained it from a stock offering, etc. A cash dividend is funds or money paid to stockholders generally as part of the corporation's current earnings or ...


15

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 average year, let's say I make 7% return* on that. So I can take out $70K, and still have my $1 million principal intact. It is the market value that matters, ...


14

It is true that operation profit comes from gross profit however it is possible for a company to have negative net profit yet have postive cash flow , it has to do with the accounting practice A possible example is that a company has extremely high depreciation expense of fixed asset hence net profit will be negative but cash flow will be positive. Assuming ...


14

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. They may pay down debt. Etc. Do they have a "responsibility" to do anything in particular with it? In a sense. A corporation has a legal, fiduciary ...


12

The company's value (which should be reflected in the share price) is not how much money it has in the bank, but something along the lines of 'how much money will it make between now and the end of times' (adjusted for time value of money and risk). So when you purchase a share of a company that has, say, little money in the bank, but expects to make 1M$ ...


10

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 started with. It is certainly false that trust funds don’t buy real estate.


8

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 = 56.5% So the compound growth is much closer to the arithmetic average growth in the first case (60%), but still does not match the second case. However, the ...


7

You are omitting how the company made 120 million in the previous year and may be facing a shrinking market and thus have poor future prospects. If the company is shrinking, what will the shares be worth down the road. Remember companies like AOL or Blackberry? There was a time they had big profits before things changed which is the part you aren't ...


7

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 want to do all that around Christmas and New Year.


6

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.


6

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 to get anything - in this example any transaction would shrink the principal by 10%. The principle is the monetary value, not the number of shares. The fact ...


5

IANAL (and nor am I an accountant), so I can't give a definitive answer as to legality, but AFAIK, what you propose is legal. But what's the benefit? Avoiding corporation tax? It's simplistic – and costly – to think in terms like that. You need to run the numbers for different scenarios, and make a plan. You can end up ahead of the game ...


5

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 gross profit. From there you can get net profit, and from there you can look at efficiency or profit per share or whatever other metric floats your boat. Or you ...


5

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 to be.


5

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 they're espousing is not new. In general, the anti-quarterly-guidance position is not that companies should never issue projections, but more specifically that ...


5

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 financial reports required of publicly traded companies. More specific to your question, its anti-fraud provisions prohibit misstatements or omissions in an ...


5

The back half of the year is the latter half, Q3 and Q4. In the Clorox case, it refers to a fiscal year.


4

Aside from the market implications Victor and JB King mention, another possible reason is the dividends they pay. Usually, the dividends a company pays are dependent on the profit the company made. if a company makes less profit, the dividends turn out smaller. This might incite unrest among the shareholders, because this means that they get paid less ...


4

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 conservative - some managements are known to be conservative and the market will take that into account to form actual estimates. When you see a headline ...


4

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 the business. From a cash perspective, the business lost $300 ($1,000 came in, $1,300 went out). From an accounting perspective, though, I have some ...


4

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 the next two quarters (Q3 and Q4).


4

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 Smith Manufacturing Co. v. Barlow ) The big, classic case about this is Dodge v. Ford Motor Co., which is one of the only cases where the company executive lost....


3

In the Income Statement that you've linked to, look for the line labeled "Net Income". That's followed by a line labeled "Preferred Dividends", which is followed by "Income Available to Common Excl. Extra Items" and "Income Available to Common Incl. Extra Items". Those last two are the ones to look at. The key is that these lines reflect income minus ...


3

This depends entirely on what the market guesses the news will be and how much of that guess has already been factored into the price. There is no general answer beyond that. Note that this explains the apparently paradoxical responses where a stock good down on good news (the market expected better) or up on bad news (the market expected worse).


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