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Money used to purchase inventory is also usually taxed as profit, which is a further disincentive.
by nickff 4y ago
Money used to purchase inventory is also usually taxed as profit, which is a further disincentive.
- WheatM 4y ago
- bruce511 4y agoYes, and no. Profit is profit and is taxed. After making a profit companies have the option of what to do with their profit. They can dividend it, use it as capital, or use it to increase working capital (like stock.) Some tax environments tax dividends further, thus making it attractive (or cheaper, depending on you pov) to reinvest the profit in the business. Of course working capital (stock on hand) can also be increased by other means - for example a loan or a capital injection. Lastly, raw stock (pile of chips) is easy to value for stock-taking purposes (usually cost basis.) partially, or in some cases completely, finished goods is trickier. They could be valued at cost, at zero (a half finished controller is worth, what?) Generally companies keep as much as they need, ideally no more. But the right number can be a moving target. We've been erring on the high side for a while now.
- xadhominemx 4y agoIt’s not taxed as profit. It’s just a cash (non-expensed) outflow. That’s just a fundamental feature of how modern accounting works.