Stock Market earnings vs units sold

[mevertsen]

A thought just came to mind, and I don't know the answer, or the answer may just be in the stock details and I don't know what to look for.

I sell 1 million widgets for 5 dollars each. My net profit was .40 each, or $400,000 for that year.

Cost of my raw materials goes up, so I now have to charge 6.5 dollars for each widget.

As a result, fewer people buy the widget, so I sell 950,000 widgets. But, because of increased sale price, I actually net .50 cents for each widget and get $475,000.

Did my earnings actually go up?

Even though my units sold went down?

But my profit increased?

What data point am I looking for here?

Or, do earnings going up actually represent a healthy or growing economy? Or just fewer people buying more expensive things?

Reason I asked, is I read articles for the earnings season coming up, but I wonder if that is a true measure of what is going on.

Thanks

 

[SAJ-99]

Did my earnings actually go up?

Yes they go up. You have presented a situation where the elasticity of demand allows for a price increase that results in higher profits.

What data point am I looking for here?

No idea what you are actually asking.

Or, do earnings going up actually represent a healthy or growing economy? Or just fewer people buying more expensive things?

Earning can going up for a few of reasons 1) inflation. The cost of everything goes up so your earnings should go up because you should increases prices along with everything else, 2) price increases that more than offset the drop in sales (the example you gave- need to know your elasticity of demand), 3) you reduce your cost and get better at delivering the good to consumers which is reflected in margin (margin was 0.40 in your example, goes to 0.41/unit).

Growth in earnings can/should represent a healthy growing economy (both with inflation and excluding). Any attempt to debate the second part of the question of fewer people buying more expensive things goes down a rabbit hole we don't want to entertain. Let's just say it's not a sustainable situation. Eventually the cost goes up so much that people move to a substitute product or some other manufacturer finds a way to produce it cheaper and then gains more in new sales from every price drop.

 

[mevertsen]

Yes they go up. You have presented a situation where the elasticity of demand allows for a price increase that results in higher profits.


No idea what you are actually asking.


Earning can going up for a few of reasons 1) inflation. The cost of everything goes up so your earnings should go up because you should increases prices along with everything else, 2) price increases that more than offset the drop in sales (the example you gave- need to know your elasticity of demand), 3) you reduce your cost and get better at delivering the good to consumers which is reflected in margin (margin was 0.40 in your example, goes to 0.41/unit).

Growth in earnings can/should represent a healthy growing economy (both with inflation and excluding). Any attempt to debate the second part of the question of fewer people buying more expensive things goes down a rabbit hole we don't want to entertain. Let's just say it's not a sustainable situation. Eventually the cost goes up so much that people move to a substitute product or some other manufacturer finds a way to produce it cheaper and then gains more in new sales from every price drop.

In regards to the data point.

When I look at a company. All the data points on a stock.

Example from a random stock that was on a headline. (A meme stock of all things. )

Basically, how do I know if the company is selling more widgets, vs selling less widgets at a higher cost.

If that's not possible just looking at a stock sheet, thats cool, just a random thought came to mind.

 

[mevertsen]

Yes they go up. You have presented a situation where the elasticity of demand allows for a price increase that results in higher profits.


No idea what you are actually asking.


Earning can going up for a few of reasons 1) inflation. The cost of everything goes up so your earnings should go up because you should increases prices along with everything else, 2) price increases that more than offset the drop in sales (the example you gave- need to know your elasticity of demand), 3) you reduce your cost and get better at delivering the good to consumers which is reflected in margin (margin was 0.40 in your example, goes to 0.41/unit).

Growth in earnings can/should represent a healthy growing economy (both with inflation and excluding). Any attempt to debate the second part of the question of fewer people buying more expensive things goes down a rabbit hole we don't want to entertain. Let's just say it's not a sustainable situation. Eventually the cost goes up so much that people move to a substitute product or some other manufacturer finds a way to produce it cheaper and then gains more in new sales from every price drop.

As to your last point about moving to a substitute ...

We have done so in our household in a lot of instances.

Looking harder at sales, generics, specific brands (harbor freight vs dewalt for a tool I might need, etc)

 

[SAJ-99]

In regards to the data point.

When I look at a company. All the data points on a stock.

Example from a random stock that was on a headline. (A meme stock of all things. )

Basically, how do I know if the company is selling more widgets, vs selling less widgets at a higher cost.

If that's not possible just looking at a stock sheet, thats cool, just a random thought came to mind.

View attachment 389934

On the company level, you might not know. Example- Apple used to report the number of iPhones sold. Then iPhone unit sales started to decline slightly in 2017-18, so they stopped reporting the "units sold" number. Similar with NetFlix and subscriber numbers. When the number stops going up, it stops being a selling point for the quarterly calls so they stop reporting it. Happens all the time. The truth is you often don't know what is driving the results. If you want to know more you have to listen to the quarterly conference calls or read 10Qs (often a great cure for insomnia). It's funny to see how the media reports some things, particularly in this political environment with tariffs and all. No one wants to say they are passing it on to consumers, but the numbers show they are all passing it on to consumers.

 

[westbranch]

If you really want some riveting reading look up the 10k/annual report. Here is a link to Krispy Kreme's since you posted a screenshot of that stock:

https://d18rn0p25nwr6d.cloudfront.net/CIK-0001857154/647df1d9-1524-440c-a208-91157bd157b2.pdf

The management discussion & analysis (MD&A) portion is what the company wants you/investors to know. Here is a screenshot of part of it. The financials are reported on GAAP (generally accepted accounting principles). The MD&A is where they like to add additional non-GAAP info(the cynics might say manipulated info) that they think is important about their widgets/donuts.

 

[SAJ-99]

 

[antelopedundee]

A thought just came to mind, and I don't know the answer, or the answer may just be in the stock details and I don't know what to look for.

I sell 1 million widgets for 5 dollars each. My net profit was .40 each, or $400,000 for that year.

Cost of my raw materials goes up, so I now have to charge 6.5 dollars for each widget.

As a result, fewer people buy the widget, so I sell 950,000 widgets. But, because of increased sale price, I actually net .50 cents for each widget and get $475,000.

Did my earnings actually go up?

Even though my units sold went down?

But my profit increased?

What data point am I looking for here?

Or, do earnings going up actually represent a healthy or growing economy? Or just fewer people buying more expensive things?

Reason I asked, is I read articles for the earnings season coming up, but I wonder if that is a true measure of what is going on.

Thanks

In retrospect and not knowing how your market would react you raised your price more than you needed to. Still if you can make the same or more profit with less input more power to you. You have 50,000 leftover widgets that you might have to pay an inventory tax on. Next year adjust your inventory so that you sell out.