What Causes Companies to Be in the Black? Compani
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Posted On: 01/18/2020 3:34:01 PM
What Causes Companies to Be in the Black?
Companies strive to remain in the black because it means they are at or above the break-even point. By being profitable, they're able to pay down debt and can maintain their cash flows during difficult times. They also need to answer to their directors and, more importantly, their shareholders. A profitable company boosts shareholder confidence and also ensures they will continue to receive any income through dividends.
The economic cycle also factors into whether a company will be in the black. During times of economic certainty, companies often find themselves profitable. For example, when the economy is expanding, consumers are more likely to borrow and spend more. Retailers, for instance, are more profitable and can pay off more debt because interest rates are low. On the other hand, when the economy is contracting and interest rates are higher, they may end up in the red, as the buying power of consumers becomes restricted.
https://www.investopedia.com/terms/b/black.asp
Companies strive to remain in the black because it means they are at or above the break-even point. By being profitable, they're able to pay down debt and can maintain their cash flows during difficult times. They also need to answer to their directors and, more importantly, their shareholders. A profitable company boosts shareholder confidence and also ensures they will continue to receive any income through dividends.
The economic cycle also factors into whether a company will be in the black. During times of economic certainty, companies often find themselves profitable. For example, when the economy is expanding, consumers are more likely to borrow and spend more. Retailers, for instance, are more profitable and can pay off more debt because interest rates are low. On the other hand, when the economy is contracting and interest rates are higher, they may end up in the red, as the buying power of consumers becomes restricted.
https://www.investopedia.com/terms/b/black.asp
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