I. Profits, Cash Flow & Capital Spending
Corporate profits are the economy's lifeblood. As Dr. Ed explains in his 2021 book, In Praise of Profits, profits are not merely a reward for economic success; they also drive the economy. Strong profits give businesses both the incentive and the financial means to expand, generating the cash flow needed to invest in capital, hire workers, and pursue new opportunities. At the same time, profits reward successful businesses and encourage entrepreneurs to take risks, innovate, and direct capital toward its most productive uses. Consumers benefit from employment gains and from better goods and services.
Let’s examine how Corporate America is turning record profits into record cash flow and putting that money to work:
(1) Profits. Corporate America is highly profitable. Pre-tax profits from current production rose to a record $4.7 trillion (saar) during Q2, while after-tax profits reached a record $3.9 trillion (chart). That leaves businesses with a large pool of earnings to distribute, retain, and reinvest.
