On January 28, 2020, an Associated Press dispatch proclaimed: “Corporate Earnings Good Despite Headlines”, stating that “corporate profits remain very healthy overall, and the majority of corporations are beating expectations.”

Michael Mauboussin, chief investment strategist of a large fund management group, in the report cited in “Legg Mason Argues For More Efficient Stock Buybacks“, also wrote in January 2006 that “corporate America is flush, and returns and cash flows remain strong.”

Are these assertions true and does this mean that the outlook is rosy for the average investor in U.S. equities?

As the Federal Reserve national flow of funds table F102 reveals, the answer is,

“Yes, U.S. corporations are flush with cash and profits are growing”, and

“No, this does not mean the outlook is rosy for the average investor in equities.”

The reason for this apparent contradiction is that the most practical and useful measure of value for corporate profits depends on who you are.

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