Business

How do companies' values affect profits?

This article:
http://www.deseretnews.com/article/1,5143,6952 73193,00.html

Claims: "Delta and Northwest, seeking to combine to create the world's largest airline, posted losses Wednesday totaling $10.5 billion for the first three months of the year, due to exorbitant fuel prices and write-downs of their companies' value."

When they say due to companies 'value', they are talking about the companies share price, or total marktet capitalization right? If so, how can that effect a companies profits?

brent.allsop Thurs 24/04/08 17:27

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buildersmate
Fri 25/04/08
07:20

'Value' in the sense the word is used there means taking a view that some assets in the company are worth less than previous accounts statements had suggested. It could be a write-off of fixed assets that had been disposed of for less than their net book value, or a reduction in intellectual capital than previously stated.
It is a poor use of the word value - as you correctly say, shareholder value is the term used to describe market capitalisation, and whilst a reduction in profits is likely to cause a reduction in share price, it is an effect, not a cause.

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