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Difference between Profit and Liquidity in Companies: Understanding to Prosper

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The distinction between profit and liquidity is fundamental to the financial health of any company. Although both concepts are interconnected, they represent different aspects of corporate finance.

Profit: The Profitability Indicator

Profit is the surplus of revenues over expenses in a company. There are different types of profit:

  • Gross Profit: Total revenue minus the cost of goods sold (COGS).
  • Operating Profit: Gross profit minus operating expenses.
  • Net Profit: Operating profit minus non-operating expenses, such as interest and taxes.

The latter reflects the company’s overall profitability and is essential for assessing financial performance.

Liquidity: The Ability to Meet Obligations

Liquidity refers to a company’s ability to meet its short-term financial obligations without incurring significant losses. It is a crucial indicator for measuring financial health and the ability to respond to immediate commitments.

The Importance of Differentiating Profit from Liquidity

A company can report high profits and still face liquidity problems. This can occur due to poor cash flow management, excessive investments, or ongoing debt payments. Therefore, it is vital for managers to understand that profit is not synonymous with immediate cash availability.

Essential Financial Indicators

To assess a company’s financial health, it is important to analyze indicators such as:

  • Liquidity Ratios: Measure the ability to pay short-term debts.
  • Profitability Ratios: Evaluate efficiency in generating profit from sales.
  • Debt Ratios: Analyze the level of debt in relation to own resources.

Conclusion

Understanding the difference between profit and liquidity allows for more effective financial management, ensuring that the company is profitable and capable of meeting its financial obligations, thus ensuring its long-term sustainability.

National Minimum Wage Increase to €870: Implications for the Economy

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The Portuguese Government has announced an increase in the national minimum wage, officially referred to as the Guaranteed Monthly Minimum Wage (RMMG), to €870 for 2025. This represents a significant 6.098% rise compared to the current level. While this measure aims to enhance workers’ purchasing power and quality of life, it carries potential implications for the broader economy.

On the one hand, this wage adjustment is expected to benefit employees, particularly in lower-income brackets, addressing economic disparities and improving social well-being. However, there is concern that this increase might trigger a rise in the cost of goods and services, potentially exceeding the wage growth rate.

For businesses, especially small and medium enterprises (SMEs), this adjustment could lead to higher labor costs, forcing companies to reevaluate pricing strategies or implement efficiency measures. While this change is likely to stimulate short-term consumption, it may also exert pressure on business profitability and competitiveness in both national and international markets.

The balance between maintaining fair wages and ensuring economic stability is at the core of this decision. As the impact of this wage increase unfolds, it will be essential to closely monitor its effects on consumer spending, inflation, and corporate operations to ensure sustainable growth.

For further details, consult Decree-Law No. 112/2024, available on the official Diário da República website.

Portugal Records the Largest Increase in Construction Production in the European Union

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Portugal stood out in October as the country with the largest increase in construction sector production among EU Member States, recording a year-on-year growth of 6.9%. This increase contrasts significantly with the 0.2% growth in the Eurozone and the 0.8% decrease in the EU, according to preliminary estimates released by Eurostat this Wednesday. This national performance can be partially attributed to the progress of works associated with the Recovery and Resilience Plan (RRP).

In an annual analysis, the indicator measuring the evolution of production volume in the sector, which includes building construction, civil engineering, and specialized construction activities, shows that the largest increases were recorded in Portugal (+6.9%), Spain (+6.3%), and Bulgaria (+6.2%). On the other hand, the biggest declines were observed in Romania (-14.5%), Slovenia (-13.4%), and Poland (-11.4%).

In the Eurozone, construction sector production rose 3% in civil engineering, 0.6% in building construction, and fell 0.9% in specialized construction activities, year-on-year. In the EU, increases were 1.3% in civil engineering, while building construction fell 0.5% and specialized activities declined 1.2%.

Compared to the previous month, construction production grew by 1% in the Eurozone and 0.7% in the EU in October. Portugal recorded the third-largest monthly increase, with a rise of 4.6%, alongside Hungary. The highest positive monthly variations were observed in Slovakia (+7.9%) and Austria (+6.5%), while the largest declines occurred in Romania (-8.3%) and Poland (-2.7%).

IRC rate 2025

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The corporate income tax (IRC) rate for 2025 is expected to undergo significant changes, reflecting a reduction in the tax burden for companies in Portugal. It is anticipated that the standard IRC rate will be lowered by 1 percentage point, decreasing from the current 21% to 20%. This change is part of a continuous effort to create a more competitive tax environment and support business growth.

Additionally, Small and Medium Enterprises (SMEs) and Small Mid Caps will benefit from a reduced rate applied to the first €50,000 of taxable income. The rate, currently set at 17%, will be reduced to 16%. This adjustment represents an additional support measure for smaller businesses, promoting their financial sustainability and market competitiveness.

These changes underline the Government’s commitment to fostering a more favorable environment for investment and economic development in the country.

End-of-2024 Inventory: Obligations for Early 2025

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The communication of inventories is a tax obligation aimed at ensuring that the Tax Authority (AT) has access to accurate and detailed information about the quantities of goods in stock at the end of each fiscal year. This measure primarily seeks to guarantee transparency in evaluating the costs of goods sold and consumed, as well as in determining the final financial result of the taxable entities’ fiscal year.

Through this obligation, the AT can more rigorously monitor the values reported by companies, which are essential for determining taxable profit, thereby contributing to greater fiscal equity and fairness.

Who is required to report inventories?
The communication of inventories is mandatory for:

Individuals or legal entities with headquarters, a permanent establishment, or tax residency in Portuguese territory;
Companies with organized accounting, regardless of their turnover or business sector.
Reporting requirements
Since the legislation was updated, submitting a valued inventory has become mandatory. This means that, in addition to specifying the quantities of each item in stock, entities must indicate the acquisition value of each item, excluding VAT. This valuation applies to all inventory items, including finished products, raw materials, goods, and any other assets relevant to the company’s operations.

Deadlines and implications
The inventory for the end of 2024 must be submitted at the beginning of 2025, within the deadlines set by the AT. Failure to comply with this obligation may result in significant penalties, emphasizing the need for rigorous monitoring and good accounting practices by companies.

With this measure, the AT aims to increase the efficiency of the tax system, promoting greater transparency and accuracy in the financial and tax reports of companies operating in national territory.

Government commits to allocate 40% of incentive resources to the Interior

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The Government of Portugal will implement a new standard under the Portugal 2030 (PT 2030) program that provides for a specific allocation of incentive funds for companies in low-density territories. The measure requires that 40% of European funds dedicated to the incentive system for companies be allocated to these territories, guaranteeing additional support for the country’s least populated regions. This policy aims to promote economic development and the creation of opportunities in inland areas, which face significant challenges in terms of investment and economic growth.

According to the Minister of Territorial Cohesion, Manuel Castro Almeida, this will be the first time that a differentiation of financial support based on geographic location has been introduced, with a margin of 20 percentage points between subsidies granted to companies in low-density territories and those located in other regions. Thus, companies located in more depopulated territories will have privileged access to subsidies of up to 50%, while those in other areas will not benefit from the same financing conditions.

The government’s decision is part of a broader effort to strengthen territorial cohesion, combating disparities between the more developed coastal regions and the interior, which faces challenges of depopulation, population aging and lack of infrastructure. By channeling a significant part of the funds to these regions, the Government intends not only to encourage economic growth, but also to encourage the settlement of populations, improve the quality of life and promote the sustainability of local communities.

This step represents a political commitment to ensure that the country’s least favored regions have the necessary tools and resources to compete economically and attract new investment, which can have a positive impact on the country’s balanced development in the long term.

Fórum for Competitiveness predicts GDP growth between 1.7% and 1.9% in 2024

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The Fórum for Competitiveness is more optimistic about economic growth in 2024, as indicated in the third-quarter 2024 “Business Perspectives” report. The Fórum has revised its projections upward, now anticipating GDP growth between 1.7% and 1.9% for 2024, compared to its previous forecast of 1.5% to 1.9%. For 2025, GDP growth is expected to be between 1.8% and 2.2%, aligning with the Government’s 2025 State Budget forecasts, which estimate 1.8% growth in 2024 and 2.1% in 2025.

However, the Fórum highlights risks that could impact these projections. Nationally, there is concern about “high political uncertainty,” with the possibility that the 2025 budget may not be approved, potentially leading to early legislative elections. Such a scenario would be detrimental to economic performance, particularly in the investment sector.

Internationally, the economic situation is improving, though geopolitical risks, especially in the Middle East, are on the rise, with fears of an escalation in the conflict between Hamas and Israel.

Regarding inflation, the Fórum projects a slowdown, from 4.3% in 2023 to a rate between 2.3% and 2.4% in 2024, and between 1.8% and 2.2% in 2025.

Source: https://www.noticiasaominuto.com

Galp drops over 4% as oil prices decline. The Lisbon stock exchange loses momentum compared to gains in Europe

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Oil prices are pressuring the shares of Galp, a Portuguese oil company, which is the main reason for the decline of the Lisbon stock exchange, down 0.55% to 6,756.06 points. Galp is plummeting 4.41% to 16.36 euros, affected by a drop of over 2% in oil prices and by Petrobras’s interest in the 40% it owns in Namibia.

CTT is also down, falling 1.23% to 4.42 euros, followed by Ibersol, which decreases 0.55% to 7.20 euros after reporting a loss of 900,000 euros. NOS and Jerónimo Martins are also experiencing losses. In contrast, Mota-Engil is up 0.88% to 2.53 euros after announcing a sustainability-linked bond issuance, achieving its best position in the ranking of the 100 largest construction companies in the world.

In the Portuguese stock market, Semapa, EDP Renováveis, BCP, and Altri also show slight increases. Meanwhile, Europe opened higher, except for Lisbon, with Germany gaining 1% and the Euro Stoxx 50 rising 1.52%.

Oil prices continue to affect commodities, with Brent falling 2.22% to $71.28 and crude dropping 2.37% to $68.04, while other commodities like natural gas and coffee are on the rise.

Source: jornaleconomico.sapo.pt

The Government has confirmed a minimum wage of 870 euros

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The Government has confirmed that the national minimum wage will be set at 870 euros in 2025 and has presented a proposal aimed at raising the minimum wage to 1020 euros by 2028. This plan includes annual increases of 50 euros, starting with a 50-euro increase for 2025, instead of the previously projected 855 euros. The goal is to reach 1020 euros by the end of the legislative term, surpassing the initial target of 1000 euros.

Additionally, the proposal focuses on increasing wages in general and promoting economic competitiveness. The average gross monthly salary is also expected to grow, with a target of 4.7% in 2025 and 4.6% in 2026, reaching 1886.29 euros by 2028. The Government, led by Luís Montenegro, hopes to reach an agreement with social partners before the 2025 State Budget is submitted, which is expected on October 10.

Meanwhile, employer confederations have requested additional measures to help businesses manage the increased labor costs. The Minister of Labor, Maria do Rosário Ramalho, indicated that the agreement includes various measures from the Ministries of Economy, Finance, and Labor to support the economy and the labor market.

Rents and withholding tax

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Sometimes withholding tax is due when paying rent. So many doubts have arisen that we decided to list 3 concise and direct points on the subject to clarify.

1 – The person who must make the retention when it is due is the one who pays the rent, therefore the tenant.

2 – If the tenant does not have organized accounting, it is not necessary to make the withholding.

3 – The retention rate can vary, but the most common is 25%.