brickcityman (50.43)

What if we only measured companies by gross revenue

November 24, 2009 – Comments (1)

Today's GDP announcement got me thinking (again)...  Perhaps its a sign of mental illness but I always seem to think the same thing whenever I hear anything about GDP.  GDP only tells half the story, so in a sense its practically useless.

Why get excited about GDP growth without some estimate of the costs associated doing business?  Perhaps there is an assumption that growth in GDP automatically means "profit", that its a given, but thats not something we would be so wonton about when analyzing a given company.

If a given company was showing revenue growth, but doing so by going into debt to purchase unprofitable enterprises my guess is it would not be a reason to be cheery.

Now the practicalities of deriving a "Net domestic product" (NDP) might be hard to manage.  For that matter the fact that GDP is somewhat fungible for months after initial readings indicates that this is an imprecise science at best.  But shouldn't we be searching for a way to determine NDP?

My proposal for NDP is modest (and perhaps overly simplistic).  Subtract the sum total of all government and corporate debt servicing from gross proceeds reflected in GDP.  This to me might give a more accurate view of the overall economy.  Of course there might be other room for improvment...  As in treating write-downs due to personal and corporate defaults as writedowns, etc.

Is this a half-cocked idea?  Too immense to fathom (sorta like the OTC deriatives market)?  or otherwise misguided?