This distinction is even more relevant for earnings. So companies will optimize this for taxation and accounting to win shareholder brownie points.
A company may make more in revenue than strictly expenses but stock-based compensation is often not considered an expense so if you add those into the expense side it could change profitability.
Employees were getting a bit too uppity.
https://abc.xyz/assets/71/a5/78197a7540c987f13d247728a371/20...
> We provide non-GAAP free cash flow because it is a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that can be used for strategic opportunities, including investing in our business and acquisitions, and to strengthen our balance sheet.
This comes off as rather reductionist and absolute to me; tech is a massive industry, do you know every sector within and adjacent to tech to have reached this conclusion?
Do an exercise, go to any job board and put in filters to match the types of jobs you are qualified for. How many of those do you think are going to be profitable, private, lifestyle companies?
My employer is one of them. Several thousand employees, global reach, and owned by PE (Blackstone and Vista).
Companies that make a shit ton of money generally don't like changes.
They're just looking for the next fool to squeeze.
This is great advice.
For instance, I was once in an interview where they were grilling me. I was reluctant to do the interview in the first place, because they'd gone bankrupt TWICE in the past five years.
At the end of the interview, it seemed fairly clear that my odds of getting the job were about 50/50. The interviewers were smart and they were asking hard questions.
But when I asked them to comment on their two recent bankruptcies, it changed the mood entirely. At that point, the entire "vibe" of the interview shifted. It became CLEAR that they'd been losing employees at a furious pace, because of their financial struggles.
Once we talked about "the elephant in the room," the entire interview tone changed, and they made me an offer in less than twelve hours.
My "hunch" is that they'd been grilling interviewees (because they were smart folks) but had been scaring interviewees off because they were in such terrible financial shape.
Basically, potential hires were ghosting them because of their financial problems, while they were simultaneously discussing technical issues when the real issue was financial.
I accepted the offer, and the company is still around. I had a similar interview experience at FTD in San Diego (the florist), and they are kaput:
https://www.cnbc.com/2019/06/03/flower-delivery-company-ftd-...
The appointed management team has to operate within that scope (i.e. no real budget to work with, despite the 50% interest), and they squeeze a bit more each year, meaning it's an uphill battle each year to get a raise or promotion. On top of that it's a cashcow in an otherwise dying and slowly shrinking business sector.
In other words a terrible place for general salary growth.
So I'd add two points to your list which is to: look for (1) profitable companies, (2) in expanding markets, (3) that aren't owned by VC.
Startups have their own set of rules where (3) doesn't really apply as much.
You know, operational expenses are the ones that get an immediate tax break, and capital expenditure the ones with a depreciation period.
Changing the expenses that way can only increase the company's tax payments. The only reason one could possibly want to make that change is if they want to fraudulently show the money paid for the contractors as earnings.
Bingo. That's the main reason to shift opex to capex.
Aha, it's that: "Opex is subtracted from earnings before public reporting and before taxes" (I see in other comments here),
but capex is not subtracted, so then it looks as if the company is doing better, on paper, although it's not. And this works only for a while, maybe some years? Which might be long enough for the current management, if they leave before things get too bad?
Just by classifying something as capex, it's automatically classified as profit already.
That change had been planned to be canceled before coming into force, but it was not canceled on time.
Hence the wave of layoffs in 2022, as companies were urgently trying to improve their balance sheets, as investors and the Wall Street requested, AFAICT.
[1]: https://www.corumgroup.com/insights/major-tax-changes-us-sof...
That doesn't make any sense. In any situation in which a contractor expense would be capitalized, an employee's salary would also be capitalized. Labor costs are labor costs; whether someone is a contractor or an employee is a labor law issue, not a tax issue. (Internal R&D was the big exception to the capitalization rule, but that loophole was closed, which is what prompted a lot of tech and videogame layoffs over the past 2 years.)
"We spent 1B in one-off costs for increased future growth" is a much happier story to investors than "we have recurring costs of 1B", put simply, even if the actual recurring cost number is worse.
(There's also some complexities in some industries around money from, say, grants, which you can only spend on certain types of expenditures...)
This strategy cannot work long term unless there is growth happening elsewhere in the company to make up for the excess money burned on contractors and reduced number of employees. But it can definitely work short term if the growth numbers for the quarter are going to look bad, and it has the benefit of giving management someone else to blame when the project work doesn’t get done.
If your company starts replacing employees with contractors, that’s a bad sign.
- a contractor provides a "service" that improves your money-machine output.
(or so it's said).
This may vary due to region. For example in the U.S where you can fire people quickly the contractor benefit is less apparent, but in EU where after a short period you may have to spend a long time to fire someone it may be beneficial to hire a contractor rather than going through a lengthy hiring process only to find out you want to fire them.
Contractors in such an environment often are a reasonable investment for a project that has a particular dedicated timeline. Like we expect 1 year for project to finish. We hire for 1 year, and opportunity to extend for 3 months 2 times in case it goes bad.
Otherwise you have to hire for project and then do these layoffs everybody here is complaining about.
Furthermore in EU if you are paying 10000 for an employee, you probably have extra fees on top of that so you are paying 14000 (estimation) then for contractor you are not paying 28000, but 20000. The pricing is not great, but there are lots of factors that can make it seem more attractive than it might appear on its face.
Finally, Contractors tend not to do any of this quiet quitting or whatever, probably because for them it is more a business and they are also earning significantly more that makes it an interesting business to be in and to maintain.
Also, I will repeat this as many times as possible: you can fire employees in Germany exactly the same way you can fire employees in the US. You just need to follow the damn law. You need to give your employee a WRITTEN letter of termination, to make the termination legally binding. Then all you have to do is give them notice (or pay the salary out immediately if you want to get rid of them immediately).
Paying double so you can fire contractors is illogical. The maximum amount of notice you can be legally entitled to is 7 months, after working 20 damn years at a single company, which means at worst the company would have to pay half your salary out a single time to get rid of you immediately. None of this 2x every year multi-year bullshit.
The reason why you hire contractors is that you do not need the full output of an employee. You might only need three months or maybe just a week. It's the same reason companies rent equipment instead of buying.
I believe the maximum amount of notice you can be legally entitled to as a contractor is whatever your contract says
That is overly simplified. First, you have to commit to one of three types of layoffs, only one of which usually is applicable (betriebsbedingte Kündigung). But if you do that you have to consider the social circumstances of the employee and also other comparable employees. Which absolutely can result in not being able to fire the employee you would like to fire without also firing a number of other employees first. That could be really disruptive, so it is not quite so easy for German employers.
The main difference at least in my region is that if you're a contractor then it's much quicker for you to quit and find a better job so the incentive to stay isn't as strong. In other words, tech workers who become contractors here usually are better contributors and have an easier time finding good offers.