This has always stumped me a little but whenever a large corporation is in the news with reports of a drop in already huge profits to reduced huge profits. Why is it accompanied by news of job losses and cuts.
The latest being BP with a drop in profits from £12bn to £4bn…….

I can’t be the only one who reads these with absolutely no sympathy(other than for those losing jobs) when they are still making £4bn!!!!!

Can someone explain what the thinking is behind this? Surely any profit is good not an instant reason to ruin people’s lives?

Could be many reasons. An 8bn drop in profits next year equals a massive loss so job losses mitigate that risk.

Depends on how much profit they intend on reinvesting surely? Future projects will be dependant on projected earnings and as such when the earnings drop, projects are cancelled and jobs inevitably go.

That’s capitalism for ya. Keeping shareholders happy and a healthy thirst to make more money. It’s all about maximising profit

The cost of running a large company is quite significant, if their profits have reduced by 3/4, then its pretty unlikely that they’ll return to the starting point the following year. They have to reduce costs otherwise they could be in administration the following year. Its not much fun, but such a significant change in profit is usually reflected in a similar change in income.

Too many folks not going to be gainfully employed in Projects/Programmes..so lay them off.

You base your forecasts on STP’s, STP’s over a given period, so if BP’s is 5 years they estimate a much reduced pipeline (no pun) of said Projects/Programmes.

Makes a whole lot of sense..

The level of profits don’t particularly matter in these situations. The important part to those running the business is that profits have dropped by two thirds, or to put it differently, are only a third of what they were the previous year. If the problem is left unchecked then next year there is a very real chance that the same reduction will occur leaving the business with a massive loss (potentially £4 billion in the highlighted case) and most likely in administration with a loss of all jobs. Another business with a profit drop from £12,000 to £4,000 in a year would have the same issues, just on a smaller scale.
Unfortunately the quickest, simplest and usually most successful way for any business to reduce costs / increase productivity is to reduce employee numbers. After all, if things pick up again in the future numbers can increase again.

All businesses, small or large, depend on a constant flow of investment. In order to get people to invest you need to give potential investors confidence that you are a safe bet for them (‘bet’ being the operative word). If you have a drop in profits then you might lose investor confidence and then that could be the start of a slippery slidy slope if your sources of investment are affected – especially if it wasn’t forecast and for reasons outside of your control (e.g. oil price). So the business needs to be seen to be doing something – so if your profit is reduced, then the only thing you can control is your cost base, and the quickest way to shed cost is to shed people. A simple and clumsy mechanism, but effective.

I think (but don’t know for sure) that the profit doesn’t include dividend payments. BP has ~18412392000 shares oustanding. Source

A dividend of 10c / share means they’re paying $1.8Billion per quarter out from their “profits” or $7.2Billion / year (which is less than their annual profit). So they are borrowing to maintain the dividend (I think). Whether this is a good idea or not is a different discussion but if you’re paying out more than you’re bringing in somethings got to give.. Hence job cuts.

It’s fairly obvious that with oil at $30 rather than $100 you are going to cut back on many developments which have a high extraction cost as they simply aren’t profitable, so whilst it’s very unfortunate for the employees who lose their jobs, it’s pretty essential that the oil companies re-align their Opex to their expected income streams.