The BEA released corporate profits for Q3 2012 along with the GDP. Corporate profits after tax shot up 5.2% from Q2 2012 to $1,752.2 billion. Corporate profits after tax are also up 18.6% from a year ago.
Corporate profits with inventory valuation and capital consumption adjustments, after tax, increased 3.3% from last quarter to $1,526.6 billion and are up 4.0% from one year ago.
Corporate profits with inventory valuation and capital consumption adjustments, pre-tax, increased $11.3 billion to $1,989.2 billion, or up 3.5% from Q2 and still up 8.7% from a year ago. These are profits from current production.
Net cash flow, with inventory evaluation adjustment increased 2.4% from Q2 to $1,886.8 billion. This is a 1.1% change from a year ago. These are the corporate funds available for investment according to the BEA.
Quarterly tax receipts for Q3 increased 4.4% from Q2 to $462.6 billion and are up 27.8% from Q3 2011.
The ones who made out like bandits were the financial industries. Their profits increased 71.3% from Q3 to $460.5 billion. Nonfinancial industrials profits declined -0.1% to $1,095.1 billion.
While corporate profits after tax just hit a record high as a percentage of GDP, wages just hit a record low as a percentage of nominal gross domestic product. Many are talking about this and that's the bottom line, wages and salaries are sharing less and less in the economic pie. Below are corporate profits after tax, in blue, scale on right, as a percentage of nominal GDP, against all wages dispersed on aggregate (not just corporate wages) as a percentage of GDP, maroon, scale on left.
We see various figures for corporate profits quoted elsewhere that are not accurate and this makes things even more confusing. The BEA reports corporate profits in a variety of ways and it seems whatever one's focus and political predilections are implies which number they use.
From the BEA's magic secret decoder ring guide to National Income and Product Accounts (large pdf), national income also uses inventory valuation and capital consumption adjustments. Their reasoning for inventory valuation is this:
Inventory valuation adjustment (IVA) is the difference between the cost of inventory withdrawals valued at acquisition cost and the cost of inventory withdrawals valued at replacement cost. The IVA is needed because inventories as reported by business are often charged to cost of sales (that is, withdrawn) at their acquisition (historical) cost rather than at their replacement cost (the concept underlying the NIPAs). As prices change, businesses that value inventory withdrawals at acquisition cost may realize profits or losses. Inventory profits, a capital-gains-like element in business income (corporate profits and nonfarm proprietors’ income), result from an increase in inventory prices, and inventory losses, a capital-loss-like element, result from a decrease in inventory prices.
The mysterious capital consumption adjustment, along with inventory valuations, derives current production income.
The private capital consumption adjustment (CCAdj) converts depreciation that is on a historical-cost (book value) basis—the capital consumption allowance (CCA)—to depreciation that is on a current-cost basis—consumption of fixed capital (CFC)—and is derived as the difference between private CCA and private CFC.
Since this is what the BEA uses for national accounts and makes much more sense from a business accounting perspective generally, seems the above before and after tax numbers are the right metrics to use when thinking about corporate profits from a national and macro-economic perspective.
If the above magic secret BEA decoder ring didn't make much sense, try this one:
Corporate profits with inventory valuation and capital consumption adjustmentsis the net current-production income of organizations treated as corporations in the NIPA's. These organizations consist of all entities required to file Federal corporate tax returns, including mutual financial institutions and cooperatives subject to Federal income tax; private noninsured pension funds; nonprofit institutions that primarily serve business; Federal Reserve banks; and federally sponsored credit agencies. With several differences, this income is measured as receipts less expenses as defined in Federal tax law. Among these differences: Receipts exclude capital gains and dividends received, expenses exclude depletion and capital losses and losses resulting from bad debts, inventory withdrawals are valued at replacement cost, and depreciation is on a consistent accounting basis and is valued at replacement cost using depreciation profiles based on empirical evidence on used-asset prices that generally suggest a geometric pattern of price declines. Because national income is defined as the income of U.S. residents, its profits component includes income earned abroad by U.S. corporations and excludes income earned in the United States by the rest of the world.