3 ms·

How can it be true that their net income doubled because they went from keeping 80% of their profit to keeping 89%?

• alwaysthrowaway 9y ago
  Other posters report that it's due to an accounting change.
• prewett 9y ago
  Your assumptions are wrong, or you have confusion based on wording. By definition, net profit is after taxes and expenses. By definition, one always keeps 100% of net profits. If by "profit" you meant "gross profit" (i.e. after cost of goods, but before other expenses and taxes), I think that would go a long ways to explaining your confusion. A small increase in your net profit margin usually causes a large increase in net income (net profit), because expenses are typically a very large percentage of revenue.
  • teraflop 9y ago
    Am I confused? I realized afterwards that I should have said "of their income" rather than "of their profit", but I think my point still stands. Corporate tax (at least in the US, and I assume in most other places) is calculated on income, i.e. revenue minus expenses. The original commenter was asserting that halving the company's tax rate, and nothing else, was responsible for a doubling of profits. My point was simply that it should be obvious that this is nonsense. Cutting the tax rate can't double the company's profit unless the company was already paying half of its income as tax. It's irrelevant that expenses are a large fraction of revenue, because expenses are already excluded from taxation.