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Profit Transfer Question

Topics: Help: Profit Transfer Question


Sunday, October 14, 2012 - 11:12 pm Click here to edit this post
I originally came on here to ask if profitable corporations taxed at 0% and with a 0% profit transfer would hold onto their profit indefinitely, allowing it to accrue without limit. However, I found a topic that explained that once their profit goes above 50B its automatically transferred to the country. But now I have another question.

What's the point of there even being a profit transfer if the money winds up going to the state anyway? I mean, wouldn't you be better off keeping it way low, like at 5% or even 1%, that way your corps' share price will be appraised at higher levels, and the money all comes back to you anyway. Am I missing something?


Sunday, October 14, 2012 - 11:24 pm Click here to edit this post
I'd say the point of profit transfer is to allow you to more easily keep track of what your state corporations are earning and how that makes your final country income stack up on the country's profit and loss sheet.

I'm not sure how profit transfer affects share prices, if at all.


Monday, October 15, 2012 - 04:52 am Click here to edit this post
I definitely remember reading somewhere in the documentation that Net Profit affects share price.

Actually I just went to look at one of my corps after typing that, and here's what it says when you mouse over the "Net Profit" figure under "General Data"

"This is the profit after tax in the past year. The net profit is used in the computation of the market value of the corporation."

So am I mistaken in believing Net Profit is the profit after tax AND profit share? Or is it simply the profit after tax, but before taking into account profit share?

Thanks for your help! :)


Monday, October 15, 2012 - 07:50 pm Click here to edit this post
You can run a country with no monthly profit transfer, but I would say that to keep a cash flow going so your country can afford all its expenses every month then it really helps to have some regular income. If you keep a good amount of cash in country then why not go for no PT.

You might notice some problems initially if you suddenly change, like the income will go to zero as the cash levels in the corps build up to the high level cash. And I am sure its higher than 50B nowadays, over 60B seems normal.

I think profit share is the set percentage of the net profit (income - taxes) you have set. The corp getting the rest. The assets of a corp (which will include cash on hand) will influence the MV of the corp, so in theory it would alter share price. This is my observation, but if Scarlet hasn't seen it then get a third opinion.


Tuesday, October 16, 2012 - 06:44 am Click here to edit this post
Net Profit plays a role in P/E Ratio and so dictates MV. However it doesn't matter what your PT is.
Revenues-Expenses=Gross Profits
Gross Profits-(GP*Tax Rate)=Net Profit
Net Profit-(NP*Profit Transfer)=Realizable Income to shareholders

So Profit Transfer amount doesn't affect MV. BUT... having a lot of cash does increase your assets which does play a role in MV.

So to understand this situation and try my hand at your original question: If you want higher MV for your corps you don't have to liquidate the profits they will pay out when cash levels get to high. But MV only matters in a few situations. There are other ways to look at it. The most obvious reason would be if you need the profit to pay for your expenses. This is obvious enough. But also, Time Value of Money should never be ignored completely. Does having 200B$ in corporate holdings help more then your ability to invest those 200B$ in cash. Money not being spent in simplest terms is wasted.


Tuesday, October 16, 2012 - 11:24 am Click here to edit this post
Relying exclusively on cash transfer in combination with zero profit sharing and no tax, might have some unwanted consequences.

A running taxation dampens the effect of large income and expense changes in the corporation in relation to the state. Or else you might end up having a lot of cash transferring back and forth, depending on the market development.

But it's a matter of temper, I guess.

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