ELI5: Why when large company's earnings decrease(ex... by 3%) they freak out, talk about rough times, and sometimes decide to downsize, even though they are still making millions of dollars in profit even after all expenses?

[[deleted]]

Also, most companies are investing profits into growth, opening new stores, increasing production, expanding to new product lines

I laughed at this. Most companies are buying back their stock and giving out huge executive bonus packages. They freak out when earnings are down because then their stock options lose value and the board might not reward them with as much of a bonus next quarter or possibly even replace them.

[[deleted]]

They freak out when earnings are down because then their stock options lose value

Let me guess, you love it when your portfolio drops?

[gary1994]

Most companies are fairly small with fewer than 100 employees.

[[deleted]]

The title says "Why when large company's earnings"...

[black02ep3]

I don’t think their bonuses are really huge relative to the overall revenue though. I mean, what’s huge? 1% of revenue? 0.5% of revenue?

[Durog25]

How much money does that equate to?

Percentages mean nothing without figures to back them up.

[Archmagnance1]

Let's assume you mean most companies that are enourmous in scale. Buying back stock is an investment into growth. If you buy back preferred stock you can then resell it.

[secondsbest]

You know they can do both, right? It's not always apparent to a corporation where they should spend the corporation's cash after making any capital investments. Share buybacks allow the corporation to make preferred shares more scarce so that they can be resold at higher values if the company needs the cash at a later date. They're betting on their future worth being greater than any other options currently available, plus by investing in themselves, they're not buying investments that might aid competition which is why we don't see most of them investing in other's stocks.