Fundamental misunderstanding of the term "profit"

[ChaliShank]

This is certainly obvious to all you Capitalism experts out there, but I feel like a complete idiot because I sat there looking at my cash dwindle while my corporation was supposedly profitable by many millions. This makes no sense to me. Profit is not revenue, it means I should be pocketing that much cash over the course of the year. I was 3 million or so to the good according to the "profit" at the bottom of the screen.

Nevertheless, despite the fact that my company was making money according to that number, my cash steadily decreased until I lost the game. In my mind, the only possible explanation is that some expenses are calculated "post-profit" which is preposterous on its face. If I want to know whether my company is making money, all factors of financial outflow need to be factored in. Otherwise that number is meaningless, and I have to spend time sorting through detailed financial charts to see whether or not my company is actually profitable, which, again, doesn't make any sense to me.

Can someone please help remove my ignorance? I fail to see how I can play this game if I don't understand what they mean by "profit" in this case. Many thanks for your assistance!

[eleaza]

Facing constant cash "shrinking", first, check if you use inverse inflation, second, check loan interest.

Also, upload a save file would be most helpful to see what's the exact reason.

[ChaliShank]

"Inverse inflation" appears to be enabled under custom game, but I don't know if it's automatically enabled in the first "fashion" scenario, which is what I was playing. I suspect that it was probably loan interest. I'm not sure why it wouldn't parse loan interest into profit, although I'm sure there is some standard reason for that. I don't have the save file, but if I generate the problem again I will post the file if it will help.

Thank you for the speedy reply. I'm looking forward to getting mad into this game, but I would say there is definitely a bit of a learning curve. Of this, however, I am very glad, because it indicates huge depth.

EDIT: If I understand inverse inflation correctly, rather than increasing the money supply the money value is decreased, which has the same mathematical effect, but is a bit simpler to track I guess? I didn't really notice this cash decrease under the other games I played, so again, it probably was loan interest.

[eleaza]

"Inverse inflation" appears to be enabled under custom game, but I don't know if it's automatically enabled in the first "fashion" scenario, which is what I was playing. I suspect that it was probably loan interest. I'm not sure why it wouldn't parse loan interest into profit, although I'm sure there is some standard reason for that. I don't have the save file, but if I generate the problem again I will post the file if it will help.

Thank you for the speedy reply. I'm looking forward to getting mad into this game, but I would say there is definitely a bit of a learning curve. Of this, however, I am very glad, because it indicates huge depth.

EDIT: If I understand inverse inflation correctly, rather than increasing the money supply the money value is decreased, which has the same mathematical effect, but is a bit simpler to track I guess? I didn't really notice this cash decrease under the other games I played, so again, it probably was loan interest.

You can check the "Game Settings" in any game (or press F9) to see what's the current setting of inflation. And I've check the "Fashion Venture" scenario, the setting of inflation is set to inverse and explain your situation (the loan interest if you have any, still contributes to the situation on top of inverse inflation though)

As to loan interest, it is not part of the "Operating Profit" calculation (it's true in real life accounting), but listed in "Other Profit(Lost)" (along with stock return, dividends, and land value changes). The profit graph in the quick bar only shows Operating Profit trends, not Net Profit (BTW, operating profit isn't equal to cash changes either, there's no Cash Flow report in the game, which is how real life corporation tracking the cash movement)

You can view "inverse inflation" as an adjustment "price" to the "baseline" year (the game starting year, 1990 or 2000). This is a more "human" friendly way of "seeing" whether the "true value" is actually increased or not. In real life we also do this kind of adjustment when comparing across time, like converting a movie ticket price of a new movie to an old movie price in the past, thus able to compare the "real" revenues between new and old.

In inverse inflation, like in "normal" inflation, keep the level of cash as low as only necessary is a good idea when "inflation" rate is positive, better converting cash into assets that can actually generate profit. However in a situation where "deflation" happens (when inflation rate is negative), sometimes it's actually not a bad idea to hold on to some more cash (this usually happens when economic situation is bad). Inverse inflation also affects the loan principal, which means over time in a positive inflation, the loan principal will decrease automatically, like the cash. (This is also true in "normal" real world inflation, it's just the other way around, the nominal amount doesn't change, it's the money itself is "shrinking" in its value, and it's why this is called inverse inflation, the value of each unit of money doesn't change, but the amount changes according to inflation rate)

[ChaliShank]

Thanks so much. None of this was obvious to me and now I have a much better handle on things. Gonna read your explanation a few more times to make sure I get it.

[eleaza]

Thanks so much. None of this was obvious to me and now I have a much better handle on things. Gonna read your explanation a few more times to make sure I get it.

Normally I would suggest to get familiar with the game with Macro Economy Realism turned off, or at least inflation set to off. After getting the hang of running a profitable business that has at least 10% of profit margin, and then turning on the inflation. If you can not beat the inflation rate, you are essentially running a business where its "real value" is actually shrinking over time.

A lot of payers often feel "normal" inflation is easier than inverse inflation, but its only an illusion. It's just huge numbers feels good, when say 100 years in the game and you are making billions, but account for inflation, the real value is probably just equal to a few millions at the beginning of the game. Inverse inflation is just a difference in perspective.