My explanation in addition to Kurtz'; You can only count a dollar of revenue once, and a dollar of costs once. Revenue is a fairly accepted definition, of all the cash that came in the door during the period (minus any negative revenue such as refunds.) Some folks use terms like deferred revenue, meaning income you are guaranteed to get, but didn't see in your bank-account. Other complications in airlines and magazine subscriptions is when is the revenue 'bookable.' Some magazine publishers don't book the actual revenue until the mail the magazine. Some airlines might (I doubt it though) book revenue only when they provide the service, but since most tickets are more rule laden than a gift certificate, they are likely booked as revenue right up front. Net Income, is the 'profit' (if positive) they have chosen to declare for accounting purposes. It's after all the bills are paid, including taxes. This is where it gets real messy. But in a capital intensive business, you have plenty of flexibility as to WHEN you want to count those dollars. In order to make future numbers look better, business' will take certain costs when it's convenient. Airlines and high-tech are notorious in this game. In laying off thousands of employees or disposing of planes, a company will book every dollar they expect to spend over the next few years to do so up front. i.e. Companies will offer health benefits for 2 years, but will take the cost 'up-front'. On the revenue side, certain companies (GE and Microsoft are good examples), massage their revenue and cost numbers to show an almost artificial growth in sales and margin. All in all, it's all a game to manipulate perceptions. After taking in $4,600M in revenue, and only coming up with $1M in income, it's a game to show 'profitability.' The SEC was created to demand disclosure in public corporation reporting. It's created a monster all it's own. A more holistic approach seems to win the day, as numbers too often lie. Who's got their 'stuff-together'?, who's got happy employees? Whoever it is, I'll take my consumption and investment business there. Matthew Since most of the revenue On Wednesday, October 22, 2003, at 02:15 PM, kurtzke@xxxxxx wrote: > RT and all, > Hate to be Clintonian, but it depends on what you mean by "revenue." > Now, I'm not an accountant -- you gotta see two of my brothers-in-law > for that. > For simplicity, let's assume American's income is just ticket sales. > -- is this just the ticket sales? > -- is this "operating revenue"? That is, the ticket sales minus the > operating costs of running the airline? Salaries, gas, landing fees, > etc. > > If it's the first -- and I suspect it is -- you can see that the $4.6 > billion gives a very incomplete picture of American. Then, whether > revenue is the first or the second, there are other deductions you > make that are not part of operating expenditures, so-called capital > expenditures -- buying airplanes or any "durable good" (at our > university, this includes computers). > > In the 1960's, lots of investors bought & sold stocks based on "income > statements" -- the equivalent of AA's ticket sales. Income going up > meant company doing well, didn't it? Well lots of people bought > Penn-Central stock for just that reason. Penn-Central went bankrupt > because the operating expenditures were going up even faster. Sort of > like judging whether government budget is okay by whether tax receipts > (income) are going up and neglecting spending (expenditures). > > On the other hand, the $1 million by itself also gives an incomplete > picture. Also, one time (one quarter) figures also give an incomplete > picture. Even so, I'm not going to call up my parents and tell them to > buy American's stock. > > john > > On Wednesday, October 22, 2003, at 12:51 PM, RT Simpson wrote: > >> Can someone 'splain it to me? AMR's revenue in Q3 was $4.6 billion, >> yet net >> income was all of $1 million. Take away the one time accounting >> adjustments, >> and the carrier would have lost $23m in Q3! UnbelieveAAble! >> >> RT Simpson >> Phoenix >> > John Kurtzke, C.S.C. > Dept of Math > Univ of Portland > Portland OR 97203 > > 503-943-7377