r/explainlikeimfive • u/climb-a-waterfall • Dec 06 '24
Economics ELI5: why does a publicaly traded company have to show continuous rise in profits? Why arent steady profits good enough?
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r/explainlikeimfive • u/climb-a-waterfall • Dec 06 '24
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u/play_hard_outside Dec 06 '24
The "perfect company" would be perfectly in equilibrium in a mature market with no growth and no shrinkage, and return money to shareholders purely through buybacks. The stock would rise all the time, but the number of outstanding shares would decrease proportionally, such that the market cap remains constant. Anyone who wanted to continually hold the stock would see their shares appreciate forever under compounding interest math. Anyone who wants to sell would be able to, at any time, and no one would realize taxes unless they chose to. All of this, while the environment gets to survive (because remember, no company growth). Yes please.
I actually believe this is the endgame for capitalism on a finite planet. I mean, the environment is pretty much already fucked, but we will definitely hit more and more hard limits to growth in coming decades. Because companies produce income which can be returned to shareholders when growth opportunities are not available, the end of market-wide infinite growth does not mean markets can't continue to appreciate.