Corporate profit is the money left over after the corporation pays its expenses. All of the money collected by the corporation during the reporting period due to services rendered or sales of a product is considered top line revenue. From revenue, a company will pay its expenses. Money left after expenses are paid is considered to be the company's profit.
Corporate profit is also a statistic reported quarterly by the Bureau of Economic Analysis (BEA) that summarizes the net income of corporations in the National Income and Product Accounts (NIPA). Corporate profit is an economic indicator that calculates net income using several different measures:
- Profits From Current Production: Net income with inventory replacement and differences in income tax and income statement depreciation taken into consideration. Also known as operating or economic profits.
- Book Profits: Net income, less inventory, and depreciation adjustments.
- After-Tax Profits: Book profits after taxes are subtracted. After-tax profits are believed to be the most relevant number.
Because the BEA corporate profits number is derived from the NIPA (dependent on GDP/GNP growth), these profit numbers are often quite different from profit statements released by individual companies.
Breaking Down Corporate Profit
Because corporate profits represent a corporation's income, they are one of the most important things to look at when investing. Increasing profits means either increased corporate spending, growth in retained earnings, or increased dividend payments to shareholders. All are good signs to an investor.
Investors may also use this number in a comparative analysis. If an individual company's profits are increasing while the overall corporate profits are decreasing, it could signal strength in the company. Alternatively, if an investor notices that an individual company's profits are decreasing while overall corporate profits are increasing, a fundamental problem may exist.