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#50728 - 12/21/18 07:04 AM Santa Claus lives in Michigan
ryck Online


Registered: 08/04/09
Loc: Okanagan Valley
The owner of a company named Floracraft had decided that he should generously reward the folks who made him successful, his loyal employees. Kudos for this man.
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#50745 - 12/24/18 09:03 AM Re: Santa Claus lives in Michigan [Re: ryck]
Ira L Online


Registered: 08/13/09
Loc: California
Perhaps not Santa Claus, but a business owner who actually did what the bloated tax cut was supposed to cause to happen—put money into the employees' hands. Better if the employees had received pay raises instead of a one-time bonus, but this is a gift horse, nonetheless. wink
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#50746 - 12/24/18 09:28 AM Re: Santa Claus lives in Michigan [Re: Ira L]
grelber Offline


Registered: 08/05/09
Loc: North of 49th ||
Originally Posted By: Ira L
Better if the employees had received pay raises instead of a one-time bonus ...

Maybe. Maybe not. It'd take a long time in terms of pay raises to aggrandize that $20K.
A bird in the hand is worth two in the bush ... so to speak.
Just consider what the recipients could now achieve with such a lump sum.

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#50748 - 12/24/18 10:15 AM Re: Santa Claus lives in Michigan [Re: grelber]
artie505 Online


Registered: 08/04/09
Originally Posted By: grelber
Originally Posted By: Ira L
Better if the employees had received pay raises instead of a one-time bonus ...

Maybe. Maybe not. It'd take a long time in terms of pay raises to aggrandize that $20K.
A bird in the hand is worth two in the bush ... so to speak.
Just consider what the recipients could now achieve with such a lump sum.

A raise would be for future service by those who stayed around long enough to earn it out...more or less gratuitous.

This was for past service...already earned...given in the true spirit of giving.

That was the point of it.

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#50758 - 12/25/18 08:32 AM Re: Santa Claus lives in Michigan [Re: artie505]
Ira L Online


Registered: 08/13/09
Loc: California
Just to clarify: Better if the employees had received pay raises over the past years instead of a one-time bonus.

Of course, maybe the employer did not have the financial resources to do this in the past. It has always been my personal belief that end-of-year bonuses (especially large ones) just mean you were underpaid all along. Of course exceptions to this abound: performance based compensation (e.g., sales) where the final tally may not be known until the end of the year. But this did not seem to be the case in the above example.
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#50763 - 12/25/18 10:02 AM Re: Santa Claus lives in Michigan [Re: Ira L]
ryck Online


Registered: 08/04/09
Loc: Okanagan Valley
Originally Posted By: Ira L
It has always been my personal belief that end-of-year bonuses (especially large ones) just mean you were underpaid all along.

Not necessarily. I (like others) always used bonuses for performance 'above and beyond' that which is expected for fully satisfactory work. In this case, the employer wanted to thank the employees who have stuck around and helped the business grow. He's even helped with their tax situation by putting some of the bonus into their 401Ks.

Diverging for a moment...the Japanese have a very interesting way of ensuring fully satisfactory performance and rewarding above average. Over the course of the year each employee is paid 80% of their salary. At year-end, if performance has been satisfactory, they get the other 20% as a lump sum. If performance is unsatisfactory, they get less than 20%...and, if above average, they get more than the 20%.


Edited by ryck (12/25/18 10:05 AM)
Edit Reason: tweaking language
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#50772 - 12/26/18 12:00 PM Re: Santa Claus lives in Michigan [Re: ryck]
joemikeb Online
Moderator

Registered: 08/04/09
Loc: Fort Worth, Texas
A pay raise is by far the best benefit to the employee in the long run as it establishes a new base for any future pay raises, benefits, and bonuses. A bonus is the better option for the employer as it does not increase the pay base. The Japanese plan ryck cited is unlikely to be viable in this country as the 20% of pay that is withheld must be carried on the books as a liability offset to earnings and depresses the market value of the companies stock which benefits neither the employer or employee.

Give me the pay raise every time because the increase in pay goes on year after year while a bonus is a one time shot. In fact if for any reason there isn't a year end bonus it is like getting a pay cut. I have worked for companies where year end bonuses were the rule and invariably if for any reason there was no bonus it resulted in the loss of the most valuable employees — the ones who could easily get a higher paying job with the company's competitors taking not only their skill but also their knowledge with them.
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#50773 - 12/26/18 03:28 PM Re: Santa Claus lives in Michigan [Re: joemikeb]
ryck Online


Registered: 08/04/09
Loc: Okanagan Valley
Originally Posted By: joemikeb
The Japanese plan ryck cited is unlikely to be viable in this country as the 20% of pay that is withheld must be carried on the books as a liability offset to earnings and depresses the market value of the companies stock...

I don't understand. The employees' annual wages are an equal liability whether paid in 26 or 52 equal payments, or if paid in some other formula. At the end of the year, the effect on the bottom line is unchanged.

Also, I would assume any formula that increases productivity would have a positive effect on the company's worth.


Edited by ryck (12/26/18 03:30 PM)
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#50774 - 12/26/18 05:53 PM Re: Santa Claus lives in Michigan [Re: ryck]
joemikeb Online
Moderator

Registered: 08/04/09
Loc: Fort Worth, Texas
Originally Posted By: ryck
I don't understand. The employees' annual wages are an equal liability whether paid in 26 or 52 equal payments, or if paid in some other formula. At the end of the year, the effect on the bottom line is unchanged.

Mere humans and small businesses typically get along with one set of books and take the long view of what did they made or lost this fiscal year. But that is not the case with publicly traded institutions. The stock market and corporate accounting does not look at the year and instead focuses on the current quarter, if not the current month or even week. (What has the company done for the investors this week?) Typically there are three sets of books: the stockholders quarterly and annual report (which can and will be "adjusted" by last minute inventory manipulation such as transferring unsold inventory to a third party warehouse and booking it as "shipped" to inflate the apparent sales and other tricks), the set kept for the IRS that is structured to maximize expenses and minimize income, and the third set that is used to actually manage the companies cash flow. All three sets use the same data, but it is organized and presented in different ways. There are no few companies that like Amazon, make little or no money from sales of product but get huge returns from inflating increasing the value of their stock.
Originally Posted By: ryck
Also, I would assume any formula that increases productivity would have a positive effect on the company's worth.

You would think, but that isn't necessarily so. The stock market is not entirely rational and it all depends on what the company officers choose to maximize. There are lots of ways to maximize the value of a company. A classic way is to have a fat retirement fund that attracts buyers so the stockholders get a quick return on their investment, they new owner then lays off all the workers and raids the retirement fund for every penny, then re-sell the remaining shell to a third party that wants to tear down the buildings and build parking lots.
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#50777 - 12/27/18 10:11 AM Re: Santa Claus lives in Michigan [Re: joemikeb]
artie505 Online


Registered: 08/04/09
Originally Posted By: joemikeb
Originally Posted By: ryck
Originally Posted By: joemikeb
The Japanese plan ryck cited is unlikely to be viable in this country as the 20% of pay that is withheld must be carried on the books as a liability offset to earnings and depresses the market value of the companies stock... (Emphasis added)

I don't understand. The employees' annual wages are an equal liability whether paid in 26 or 52 equal payments, or if paid in some other formula. At the end of the year, the effect on the bottom line is unchanged.
  • I've got no idea what you mean by "a liability offset to earnings".
  • The fact that the liability is on the books means that the other side of the entry that got it there has already impacted earnings and, therefore, been reflected in stock price.
  • In this instance, the 20% and its attendant taxes and benefits are accrued every pay period, and along with cash payroll are reflected as current expenses, and their status as a liability rather than a component of cash flow is actually beneficial.
  • This particular liability is 100% offset by cash, which is presumably earning interest and, therefore, positively impacting earnings.
  • The only effect this liability could have on a balance sheet is impact current ratio.
  • But under any circumstances, the underlying facts would be known by analysts, discounted, and have absolutely no effect on a company's stock price.
Originally Posted By: joemikeb
There are no few companies that like Amazon, make little or no money from sales of product but get huge returns from inflating increasing the value of their stock.

Please clarify "get huge returns from inflating increasing the value of their stock".

How do these companies increase the value of their stock without either generating or offering up a plausible - or even implausible - promise of earnings? (Amazon was, in fact, quite profitable in its 2015 and 2016 fiscal years. [I couldn't locate data for 2017.])

Originally Posted By: joemikeb
Originally Posted By: ryck
Also, I would assume any formula that increases productivity would have a positive effect on the company's worth.

You would think, but that isn't necessarily so.

ryck's assumption is correct in a "going concern" situation, which is presumably what we're dealing with here.

(15 seconds to post)
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#50779 - 12/27/18 11:21 AM Re: Santa Claus lives in Michigan [Re: artie505]
joemikeb Online
Moderator

Registered: 08/04/09
Loc: Fort Worth, Texas
Actually I mis-spoke. blush

Withheld pay is NOT an offset to earnings which would appear in the Income Statement. Withheld or otherwise unpaid debts such as pay, outstanding loans, unpaid dividends to stockholders, unsold inventory, etc appear on the Balance Sheet as a direct offset to the CURRENT NET VALUE of the company. Typically the first, and in surprisingly many (most?) cases ONLY, thing a banker considering a loan or an investor considering a stock purchase or sale looks at is the Balance Sheet. Personally I have never understood that since the Income Statement, Profit and Loss, and/or Cash Flow statements present a picture of performance over time while the Balance Sheet is a static snapshot of the company at a given point in time. But the Balance Sheet rules with all but the most sophisticated investors. As I said the market is not always rational.

Most of us do look at an institution as a going concern but there is a significant number of investors who see a concern with good cash reserves as a source of money to be raided and have no notion of being there when the doors close. That is why some companies with fully funded retirement plans put the retirement funds into a non-profit entity owned by the employees so those funds are not vulnerable to corporate raiders. Even the threat of one of these raiders buying a company's stock may be enough to cause other investors to bail out.

The key to Amazon is in my statement that they did not make any profit from sale of goods until 2016 or 2017. They did make a substantial profit however, from other activities such selling information to advertisers and others about who purchases what, and the founders and investors became ridiculously wealthy from the increase in stock value. You have to read all the various financial statements to get a true picture of a company's performance and often not all of those statements are available to the public and what is available is not the set of books that is seen by the IRS or used to actually run the company. Remember there are at least three sets of books in large institutions.
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#50805 - 01/02/19 12:24 AM Re: Santa Claus lives in Michigan [Re: joemikeb]
artie505 Online


Registered: 08/04/09
Originally Posted By: joemikeb
Withheld pay is NOT an offset to earnings which would appear in the Income Statement. Withheld or otherwise unpaid debts such as pay, outstanding loans, unpaid dividends to stockholders, unsold inventory, etc appear on the Balance Sheet as a direct offset to the CURRENT NET VALUE of the company.

First, a brief tutorial in double-entry bookkeeping:
  • Every entry in a company's books of account has a debit side and a credit side.
  • Debits ALWAYS equal credits!
  • That's why books balance. smile
  • Debits increase assets, decrease liabilities, or are expenses.
  • Credits increase liabilities, decrease assets, or are income.
In the instance we're discussing, the debit side of the entry records the currently paid 80% and the deferred 20% as current payroll expense, and the credit side decreases cash by the 80% and creates a current liability, accrued payroll, to account for the 20%; the deferred payment of the 20% doesn't negate its immediate recognition as an expense in the company's books of account.

"Current Net Value" may be an analysts term that I've never heard, but there's no such term in financial accounting.

The accrued payroll impacts the company's CURRENT POSITION...its all-important ratio of current assets to current liabilities (although in this instance the unspent cash has an equal and opposite effect).

Originally Posted By: joemikeb
Typically the first, and in surprisingly many (most?) cases ONLY, thing a banker considering a loan or an investor considering a stock purchase or sale looks at is the Balance Sheet. Personally I have never understood that since the Income Statement, Profit and Loss, and/or Cash Flow statements present a picture of performance over time while the Balance Sheet is a static snapshot of the company at a given point in time. But the Balance Sheet rules with all but the most sophisticated investors. As I said the market is not always rational.

You've just called an awful lot of experienced professional bankers and investors "unsophisticated" and "irrational", and I'll differ with you on it...very strongly.

In the contexts of lending and investing, historical earnings are nice to know, but they're water under the bridge...more or less useless other than for gaining perspective on current earnings, projected earnings are pie in the sky, and cash flow is only part of the picture.

While I'd NEVER lend money to or invest it in a company without looking at all of its financial statements, its balance sheet is what I'd look at first; in a nutshell, it tells both WHAT AND WHERE THE COMPANY IS and HOW IT'S BEEN MANAGED, and it overrides all else in terms of being worthy of consideration.

I've run across any number of companies whose statements of profit & loss and cash flow would have you emptying your pockets, but whose balance sheets immediately revealed that they were teetering on the edge of insolvency, if not already over the it.

That "static snapshot of the company at a given point in time" is what bankers and investors are, as the case may be, banking on or investing in.

Originally Posted By: joemikeb
You have to read all the various financial statements to get a true picture of a company's performance and often not all of those statements are available to the public and what is available is not the set of books that is seen by the IRS or used to actually run the company. Remember there are at least three sets of books in large institutions.

I'll take issue with the way that's stated, if not its substance.

A company has only ONE set of books, and from it, its balance sheet and statements of profit & loss and cash flow, the financial statements used to run it on a day to day basis, are derived in more or less detail depending upon the use to which they're to be put.

The balance sheet is the same one that's given to IRS on a company's Form 1120, U.S. Corporation Income Tax Return; IRS doesn't get a statement of cash flow.

A company's profit & loss statements for book and IRS purposes may differ, but there's no special set of books involved.

The differences, which result from differences between what constitutes income and expense according to Generally Accepted Accounting Principles and as seen by IRS, i.e. as stipulated in the Internal Revenue code, are reconciled in Schedule M-1 or M-3 (depending on the size of the company) of the company's Form 1120.

By way of example, the most common Schedule M-1/3 entry in my experience (and I"ll guess in that of all others too) is depreciation resulting from a quicker write-off of assets for tax purposes than for financial accounting purposes.

That different statement of profit and loss doesn't impact a company's day to day operations, nor is it particularly pertinent in any other business respect. Anything consequential in Schedule M is stated in detail, rather than as a free-standing number, in the notes to the company's financial statements.

Originally Posted By: joemikeb
The key to Amazon is in my statement that they did not make any profit from sale of goods until 2016 or 2017. They did make a substantial profit however, from other activities such selling information to advertisers and others about who purchases what, and the founders and investors became ridiculously wealthy from the increase in stock value.

Thanks for clarifying your ambiguous original quote.

Originally Posted By: joemikeb
There are no few companies that like Amazon, make little or no money from sales of product but get huge returns from inflating increasing the value of their stock.

In saying " get huge returns" you really meant "generate huge returns for investors".

(Gateway Time-Out)
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