Why Investors Care
Profits are the income of an enterprise and a key factor that determines the extent to which it can undertake investment spending. When profits are strong, enterprises will be able to increase their capital spending. This could allow better growth prospects for an enterprise and is likely to increase its underlying value. When profits decline or grow at a slower pace, then capital spending tends to decline or weaken.
Profits also reveal the health of an enterprise. When an enterprise’s profits are anemic during economic expansion, it suggests that the enterprise is not performing efficiently. When a enterprise’s profits are relatively strong, even during an economic downturn, it usually means that the enterprise is well-managed. For publicly listed companies this will have a large impact on the company’s stock price. In China, many major enterprises are owned by the government, and the strength of profits provide an important measure of their performance and the extent to which they are supporting or weakening government finances. Looking at the detailed data for industrial profits can also reveal information about the relative performance on different industries.