Like, Company A posts 5 Billion in profits. But if they post 4.9 billion in profits next year it’s a serious failing on the company’s part, so they layoff 20% of their employees to ensure profits. Am I reading this wrong?
In: Economics
This is more true for public companies. The problem is that investors will buy shares, and they have an expectation that those shares will grow in value so they can eventually sell them and make a profit. Posting better and better revenues is a way to grow the share price. Failing to do that risks the CEO or other execs getting ousted and replaced by someone who can give the results they want.
But a public company doesn’t necessarily *have* to get super aggressive about it. The other way to provide shareholder value is through dividends, giving them a cut of profits just for owning shares. Generating a stable passive income just for holding the shares also has value.
With private companies, where it’s one owner or a few owners, if $10M a year pays all the bills and keeps everyone employed and keeps the owner(s) happy, there’s no need to post higher and higher profits unless that’s what the owner wants.
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