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.
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.])
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.
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