On management: The real stimulus

Pat Wiesner //August 1, 2010//

On management: The real stimulus

Pat Wiesner //August 1, 2010//

Wow, those oil companies sure handle a lot of money and end up with a ton of profit! The top 10 oil companies account for about $1 trillion ($1,000,000,000,000) of sales and more than $100 billion ($100,000,000,000) in profit.

Last year, Exxon Mobil had revenues of $300-plus billion, and even poor old beat-up BP had revenues of $240 billion and is doing even better this year. GE for 2009 was in the neighborhood of 
$120 billion in sales. Goldman Sachs had sales of $51 billion.

Before you conclude that this is just too much, that these huge companies are out of control and buried in money, think about this: The average after-tax profit for all U.S. industry is less than 10 percent. This includes all companies, including yours and mine. Exxon Mobil was about 11 percent in 2009 as was BP, while ConocoPhillips was 6.6 percent.

But 10 percent of billions of dollars is a lot of money. Where does all that profit, hundreds of billions of dollars, go?

Some will tell you that it goes to all those overpaid managers and CEOs who really aren’t worth it. (Don’t give the profit to the CEOs!) Well the answer is, of course, no, it doesn’t go to pay anyone in or out of the company.

All those high-priced execs are counted as expenses before the profit is calculated. They are paid first, along with all the other payments and expenses and are charged to the company.

So where do all those billions in profit go? They must go to taxes! Nope. The 10 percent average for profit is an after-tax number. Uncle Sam has already gotten his cut.

So where does all that billions in profit go? It must go to the stockholders! A little goes to the stockholders; about 10 percent to 30 percent of the average profit goes to dividends.

This still leaves 7 percent to 9 percent profit to the company, after paying expenses, executives, taxes and dividends. This is still billions of dollars. Where does all this profit go?

I attended a luncheon sponsored by the Alliance for Choice in Education ** a month or so ago and listened to Mitt Romney make this point about profit, and I haven’t been able to get it out of my mind.

It is so simple that I can’t see how our government can believe that we can “spend” ourselves out of a recession.

Profit has only a few places to go: Growth of the company, cash in the bank or against debt are the main ones. In most cases profit goes to grow the company. Look around you: The companies that have done OK in the recession are expanding, opening more stores, drilling more wells, etc. The ones not doing so well are going the opposite direction. Some profit-makers are keeping the cash, worried about the economy, afraid to invest. But profit is reinvested for growth of the company.

Profit is the real stimulus that sets up growth and recovery. Profit is real money, not printed money that is put against the problem.

The best that the government can do now is stop borrowing, taxing and printing money… stop piling a huge debt on our kids. And stop demonizing business. It is a big part of the solution.

** Alliance for Choice in Education- A Denver organization that for more than 10 years has helped more than 6,000 local at-risk kids get money for a quality education K-12. ACE graduation rate this year for high school students is 93 percent, and 100 percent are going to college. (www.acescholarships.org/)  

Billion-dollar club (2009 profits)
Exxon Mobil – $19.4 billion
BP – $18.9 billion
General Electric – $11 billion

Gross Domestic Product (2009)
U.S. – $14 trillion
EU – $16 trillion
World – $57 trillion
Sources: Thomson Reuters, MarketWatch, Agence France-Presse

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