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Recession Investigation Part 2-A Bad Bet?
Exxon & Microsoft are reporting profits the last 3 years...is this the truth or do their balance sheets report more to this story?
Finally, Microsoft’s revenue is up from $60 billion up to $69 billion. Microsoft’s gross profit has gone from $49 billion to $54 billion. So its gross profit is up 11.3%. As we look at Microsoft’s cash we see that Microsoft’s cash is down 7.5% from $10 billion down to $9.6 billion, which you would expect their cash to be down. But what about Microsoft’s long term debt? Microsoft’
So as we look at these four companies we can see that three of them have been weakened during this recession. They have taken on more debt, they have less cash. However, they are able to report higher revenues and higher profits. How are they able to do this?
Well they have laid off employees, which lowers their expenses, and they’ve also been able to borrow mass amounts of money to prop up and generate these fake revenues and fake profits. Why do I say fake? When you have to go out and borrow money, lots of it, to increase revenue then to me it is not real because you eventually have to pay it back. The only exception to that is Procter & Gamble, who has been able to effectively manage their company during this recession without being hit that badly. One could argue that Procter & Gamble has actually become financially stronger during this recession. Or maybe only a little bit weaker.
But as we look at this sample of businesses, 75% of the largest companies in America have in fact only minimally increased their revenues and profits and have less cash and more debt. That means in order for them to improve their balance sheets and get stronger financially things are going to have to improve economically. And I don’t know that these companies are going to be able to do that. I don’t know if we’re going to see a stronger economy moving forward. I don’t know that these companies have much more room to continue to lay off people without it affecting the bottom line of the revenue that they’re able to generate.
These companies are betting on an economic boom, to provide them with enough money to repay their debts. “Come now, you who say, “Today or tomorrow we will go to such and such a city, and spend a year there and engage in business and make a profit.” Yet you do not know what your life will be like tomorrow. You are just a vapor that appears for a little while and then vanishes away.” - James 4:13-14
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