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Exactly - he expects some sort of linearity and direct comparability where none was ever intended.
Posted on 07/31/2017 8:56:30 AM PDT by Lorianne
Can profits really grow in double-digits in an economy bumping along at 2%?
That's the question that investors should be asking, and instead ignore at their peril. We've all heard the Wall Street bulls' mantra, endlessly advanced by analysts and market strategists, that a renewed surge in profits will keep equity prices waxing. The current consensus among analysts forecasts that reported S&P earnings-per-share will jump from $100.29 in Q1 of 2017 (based on the past four quarters) to $133 by the end of 2018, an annualized increase of over 18%.
Of course, those consensus forecasts are always inflated. But even if we discount those projections by 45%, the bulls are still expecting 10% gains in EPS over the the seven quarters spanning Q2 2017 to Q4 2018.
But recent history, and projections from every agency from the IMF to the CBO, foresee GDP growth in the 2% range, or 4% including projected inflation, well into the future. So how can the profits expand 6 points faster than the overall economy that drives the sales that largely determine the course of those profits?
(Excerpt) Read more at fortune.com ...
Consolidation.
It seems that a lot of folks see this as a good climate for doing some venturing....
How did you get an A when the class average was a C?
exactly
Depending on a company's fixed costs and margins, a total 2% increase in revenues can produce a significantly greater percentage increase in its profits.
“So how can the profits expand 6 points faster than the overall economy that drives the sales that largely determine the course of those profits?”
Well, technically it is possible through efficiency, cost reductions and productivity gains.
All very, very healthy for a business and economy.
Though eventually consumer income and wealth diminish. And the cycle returns.
Lots of pent-up growth out there.
In the Southeast, right now you can't throw a rock without hitting new construction, major remodeling (seems like every restaurant is doing one....) or a "Now Hiring" sign.
Nice to see things booming. Been a few years.
How? By cutting costs.
But aren’t both percentages pre-averaged?
He seems to be comparing one set of estimates to another set of estimates. The real answer is: Trump!
It is called operating leverage.
Revenue grows at x%, and profit grows at (x+ ol)%
Democrat-majority areas are collapsing due to pessimism over the future of government subsidies.
Growth is becoming regionalized. A future President Kamala Harris would crash Texas and make California boom - until other people's money runs out.
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Exactly - he expects some sort of linearity and direct comparability where none was ever intended.
Dumb question:
Last year:
Sales 1,000
Costs 900
profit 100
This year
Sales up 2% 1,020
costs up 1% 910
profit 110
profit up 10% (110/100)
Not EVERYONE was going broke during the Great Depression.
A third were going broke
A third were surviving
and a Third were having their most profitable years ever.
JMHo
And efficiency, productivity, good marketing, taking cost out, taking share, and a host of other things that business people get paid to do.
I’d have been laughed out of the room if I’d ever presented a business plan that reflected only GDP growth. They could get that without me.
Easy. It ain’t 2% growth. It’s a lot more.
We post jobs numbers, new startups, new expansions EVERY DAY here on FR and they are stunning.
AZ, for example, is growing by leaps and bounds. INTEL’s expansion alone in Chandler will account for thousands of new jobs. Building on every corner.
Not all business have the same profit margins, also once you have paid operating cost additional revenue increase profits exponentially. For some business 2% growth would allow them break even while 2% for another business could be almost entirely profit.
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