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Huh, not sure I understand all of it but good information nonetheless; thanks!

pfortuny 10y ago
Essentially: accounting is an art. If you do not have profits, you pay less taxes, for example. Paper "losses" are a thing. Money losses are another.
- __s 10y ago
  Accounting is a conart
  - ptaipale 10y ago
    Well, no; it doesn't really even impact whether you pay dividends/taxes or not, but it does impact when you pay them. It's not that difficult to shift things across financial years, although eventually you'll show the profit/loss accurately, cumulatively.
- matt4077 10y ago
  That's a very clueless way to answer their question. Accounting has several layers: - Cash flow: this is what you'd look at for your lemonade stand. Actual money comes in and goes out (either "cash cash" or you bank balance, both is "cash" in this regard) But that layer isn't the most important one for incorporated companies. Yes, running out of cash is a problem. But what usually / actually happens is failure on the "value" level: - Your company has a value of which cash is only one, usually small, part. Stuff you own, like buildings and patents and brands are another. So is debt your customers have with you. On this level, you can spend money without any effect on the value: If you buy a skyscraper in Manhattan, you may spend %2 billion in cash, but you get a $2 billion building in return. You can also increase the value ("make a profit") without actually getting any money: if you sell the skyscraper for $4 billion on December 20th, 2016, you've made a $2b profit in 2016, even though the money will only arrive in 2017. The reasoning is that this system results in a more accurate picture of a company's finances.
Lazare 10y ago
Let's say you sell $9 billion of shares, and build a massive fab with it. You believe it'll have a working life of about 15 years, before changing technology makes it worthless. Each year you spend $100 million on salaries, rent, and materials, and you earn $500 million in sales, leaving you with $400 million in the bank at the end of year 1, $800 million after year 2, $1.6 billion after year 4, etc. Pretty good, right? Not really. You're cash flow positive to the tune of $400 million/year, but you're not profitable. You spent $9 billion on that fab; since it'll last for 15 years that means each year costs about $600 million. Or to put it another way, at the end of 15 years you'll have $6 billion in the bank, but you started with $9 billion. Turning $9 billion into $6 billion is the opposite of a profit. And since it's not enough to build a new fab, it's also the opposite of "having a functional business". Another example might be selling off a profitable business for an injection of cash. The cash helps you pay salaries and keep the lights on, but if that's all you do with it you're now even less profitable than when you started. Or as in AMDs case, you could sell off your headquarters, then lease it back. You get a pile of cash initially, but you then have to pay it all back and more just to keep using your headquarters, and the increased costs will lower profits. Similarly, if you can convince people to keep investing, you can run keep running a loss but not run out of cash. (All numbers utterly hypothetical. I'm also simplifying a lot.)

Essentially: accounting is an art. If you do not have profits, you pay less taxes, for example. Paper "losses" are a thing. Money losses are another.

__s 10y ago
Accounting is a conart
- ptaipale 10y ago
  Well, no; it doesn't really even impact whether you pay dividends/taxes or not, but it does impact when you pay them. It's not that difficult to shift things across financial years, although eventually you'll show the profit/loss accurately, cumulatively.
matt4077 10y ago
That's a very clueless way to answer their question. Accounting has several layers: - Cash flow: this is what you'd look at for your lemonade stand. Actual money comes in and goes out (either "cash cash" or you bank balance, both is "cash" in this regard) But that layer isn't the most important one for incorporated companies. Yes, running out of cash is a problem. But what usually / actually happens is failure on the "value" level: - Your company has a value of which cash is only one, usually small, part. Stuff you own, like buildings and patents and brands are another. So is debt your customers have with you. On this level, you can spend money without any effect on the value: If you buy a skyscraper in Manhattan, you may spend %2 billion in cash, but you get a $2 billion building in return. You can also increase the value ("make a profit") without actually getting any money: if you sell the skyscraper for $4 billion on December 20th, 2016, you've made a $2b profit in 2016, even though the money will only arrive in 2017. The reasoning is that this system results in a more accurate picture of a company's finances.

Lazare 10y ago

Let's say you sell $9 billion of shares, and build a massive fab with it. You believe it'll have a working life of about 15 years, before changing technology makes it worthless. Each year you spend $100 million on salaries, rent, and materials, and you earn $500 million in sales, leaving you with $400 million in the bank at the end of year 1, $800 million after year 2, $1.6 billion after year 4, etc. Pretty good, right? Not really. You're cash flow positive to the tune of $400 million/year, but you're not profitable. You spent $9 billion on that fab; since it'll last for 15 years that means each year costs about $600 million. Or to put it another way, at the end of 15 years you'll have $6 billion in the bank, but you started with $9 billion. Turning $9 billion into $6 billion is the opposite of a profit. And since it's not enough to build a new fab, it's also the opposite of "having a functional business". Another example might be selling off a profitable business for an injection of cash. The cash helps you pay salaries and keep the lights on, but if that's all you do with it you're now even less profitable than when you started. Or as in AMDs case, you could sell off your headquarters, then lease it back. You get a pile of cash initially, but you then have to pay it all back and more just to keep using your headquarters, and the increased costs will lower profits. Similarly, if you can convince people to keep investing, you can run keep running a loss but not run out of cash. (All numbers utterly hypothetical. I'm also simplifying a lot.)