Word: pretax
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Donald Trump is not alone in his misery. Hapless borrowers, crushed by debts they assumed during the go-go 1980s, have made the term "cash crunch" a byword of the '90s. The average U.S. company is so loaded down with loans that it must spend fully 50% of its pretax earnings on interest payments, vs. 32% in 1980. "The major issue facing the nation is that people and companies can't live off debt indefinitely," says Louis Masotti, a professor at the Stanford and Northwestern business schools...
...bought Lincoln Savings and Loan, we had a fair market value as a family of many tens of millions of dollars. We produced, we were making money, we had excellent assets. We took a failing S&L, we made $17 million in the partial year we first took it, pretax. We made $100 million the next year. Then the Feds started helping us run it, so we only made $80 some million in the third year. Their help intensified in '87, and we made about $60-plus million. In '88 they really came in and took us over...
Even if the eight-year-long Reagan recovery limps through 1990, credit contraction and stagflation will leave many casualties. The most exposed sector is corporate America, particularly its most leveraged members. The Bush budget assumes that pretax corporate profits this year will rise almost 20%, to $360 billion. But forecasters like M. Kathryn Eickhoff, a former colleague of Greenspan's, think profits will stagnate at best. Says she: "These conditions will mean a real squeeze on the restructuring plans of highly leveraged companies." The net effect: many highly leveraged firms will find it difficult to make their interest payments...
...months advertising giant Saatchi & Saatchi has admitted that it was enduring a rough year. But when chairman Maurice Saatchi faced investment analysts in the company's luxurious London boardroom two weeks ago, the news was far worse than anyone had feared. After 19 years of uninterrupted growth, Saatchi's pretax profits for 1989 collapsed, dropping from $217 million last year to just $34 million, an 84% decline. After taxes and other provisions were deducted, the world's largest advertising firm reported its first net loss, of $92 million...
...risk, he argues that "launching the Sun is likely to turn out on an investment basis to be the best deal we've ever made. For the same amount of money, I could buy something boring that I've done umpteen times over that has the potential to earn, pretax, perhaps $2 million. The Sun has the potential to earn 15 times that. So from a risk-reward viewpoint -- which isn't why I did it -- it makes sense. From a creative viewpoint, it has a lot to do with how our newspapers will operate...