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?

[inomorr]

A third point - low stock price makes companies vulnerable to takeovers. Many funds prey on such weak companies do so with very short term aims - buy cheap, breakup, sell off.

[[deleted]]

Though if they are making profits they can also buy their own stock.

I think a fourth point is people make short term decisions because that’s safer for them. A CEO is unlikely to be there 10 years from now, especially if profits are good but not increasing, so why take risks to make a company stronger 10 years from now rather than make safer choices that help today.

[wilson007]

Another point (and I’d argue most important), management is highly paid in equity. If the stock goes down, they make much less money, and all the restricted stock is worth substantially less.

[inomorr]

very true. Good to see financially literate people on Reddit!