buying power

Doug Henwood dhenwood at
Thu Dec 3 09:04:10 PST 1998

Anderson, Bob wrote:

>For us uneducated, please explain uninvestable profits...thanks

Profits in excess of a firm's ability to invest them in sufficiently profitable projects. "Sufficiently" is not easy to define, but Wall Street generally wants something in the neighborhood of a 20% return, which is well above what Exxon could generate. So, the shareholders demand that instead of being reinvested in the business at a mere 5, 10, or 15% return, the excess profits should be turned over to them, in the form of dividends and stock buybacks.


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