Tag: shareholders

Norfolk Southern is paying $6.5 million to derailment victims. Meanwhile, it’s shelling out $7.5 billion for shareholders | CNN Business

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CNN
—

Norfolk Southern CEO Alan Shaw pledged Tuesday the freight railroad will spend $6.5 million to help those affected by the release of toxic chemicals from its derailment nearly three weeks ago in East Palestine, Ohio. But in a plan released earlier this year, the company said it’s planning to spend more than a thousand times that amount — $7.5 billion — to repurchase its own shares in order to benefit its shareholders.

The company spent $3.4 billion on share repurchases last year, and $3.1 billion in 2021, bringing its recent share repurchases to $6.5 billion. That towers over what it said is its financial commitment to East Palestine, which it said exceeds $6.4 million in direct aid to families and government agencies, in addition to what will be required in cleanup costs.

There is no estimate as to the total cost to Norfolk Southern from the derailment, including the cost of cleanup that the Environmental Protection Agency says will be the railroad’s responsibility.

It’s not clear how much of the accident’s cost will fall on Norfolk Southern. The company revealed Wednesday during a conference call with investors that it has as much as $1.1 billion worth of liability insurance coverage that it can draw upon to compensate third parties for losses caused by the accident. It also has about $200 million worth of insurance coverage to cover damage to its own property, such as tracks or equipment.

In March 2022, Norfolk Southern

(NSC) announced a new $10 billion share repurchase plan. Its latest annual financial report, filed just hours before the derailment this month, shows that it still had $7.5 billion available to buy additional shares under that repurchase plan as of December 31.

Norfolk Southern did not respond to questions Wednesday on whether it expects to change its share repurchase plans in the wake of the derailment.

The company also returned an additional $1.2 billion to shareholders in the form of dividend payments in 2022, and $1 billion in 2021, bringing total payments to shareholders to $4.6 billion last year and $4.1 billion in 2021.

The shareholders did much better than the company’s 19,000 employees. Total employee compensation in 2022 came to $2.6 billion, up from $2.4 billion in 2021.

The amount that Norfolk Southern and other major freight railroads are spending on shareholders got a lot of attention in December, when they successfully fought a move in Congress to require them to give hourly workers at least seven sick days a year as part of a labor contract imposed on the industry by Congress in order to avoid an economically crippling rail strike. And it’s getting new attention in the wake of the derailment, along with questions about whether the environmental disaster could have been avoided if the railroad had spent more on staffing and safety.

“Corporations do stock buybacks, they do big dividend checks, they lay off workers,” said Democratic Sen. Sherrod Brown of Ohio, on CNN’s State of the Union on Sunday. “They don’t invest in safety rules and safety regulations, and this kind of thing happens.”

The accident is under investigation by the National Transportation Safety Board. While the cause has yet to be determined, it is known that freight railroads have fought tougher safety rules in the past.

One rule the industry successfully fought would have required a more modern braking system on trains carrying significant amounts of hazardous materials. The Federal Railroad Administration, which proposed the rule under the Obama administration, estimated a more modern braking system would reduce by nearly 20% the number of rail cars in a derailment that puncture and release their contents.

The FRA estimated those better brakes would cost the entire industry $493 million, spread over a period of 20 years. The Association of American Railroads, the trade industry group that represents most US freight railroads, estimated a much greater cost — about $3 billion, but again, spread over 20 years. That would mean around $150 million a year for an entire industry that is earning billions of dollars of annual profits.

Still, it was able to block the rule from ever taking effect, based partly on the argument it was too costly for the potential benefit.

“The railroads are quick to point out their lack of funds to provide adequate staffing, paid sick leave and improved safety, yet they have billions of dollars to spend on stock repurchases,” said Eddie Hall, national president of the Brotherhood of Locomotive Engineers, the industry’s second-largest union behind the one that represents conductors.

Share repurchases are designed to help increase the value of the stock by reducing the number of shares outstanding.

In theory, each remaining share becomes more valuable since it represents a greater percentage of the company’s overall ownership. The earnings per share, a key measure used by investors to judge a company’s profitability, can rise even if the total dollars earned by the company goes down, as the pool of shares available to the public shrinks further.

But Norfolk Southern’s profits aren’t going down. They’re going up — by quite a bit. It posted record profits from railway operations of $4.45 billion in 2021, and broke that record in 2022 when it earned $4.8 billion on that basis.

Other freight railroads are also reporting improving profits, and have joined Norfolk Southern in massive share repurchases.

Union Pacific

(UNP) purchased $6.3 billion worth of shares in 2022, and has plans to purchase an additional 84 million shares, worth more than $16 billion at its current value. CSX repurchased $4.7 billion worth of shares last year and has plans to buy an additional $3.3 billion going forward. Like Norfolk Southern, both UP and CSX spent more on share repurchases than they did on total employee compensation.

Share repurchases are not limited to the rail industry. Chevron

(CVX) recently announced plans to repurchase $75 billion worth of its stock with windfall record profits that came from high oil prices. Across corporate America, share repurchases reached almost $1 trillion for the first time last year, coming in at $936 billion according to S&P Dow Jones Indices, up from $882 billion in 2021.

Share repurchases are forecast to top $1 trillion this year.

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February 22, 2023
Warren Buffett is missing out on this year’s market comeback | CNN Business

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A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here.

New York
CNN
—

Warren Buffett is arguably the most legendary investor of all time. But the Oracle of Omaha has missed out on this year’s stock market rally. So far, at least.

Shares of Buffett’s Berkshire Hathaway

(BRKB) conglomerate, a company that owns businesses ranging from Geico and the Burlington Northern Santa Fe railroad to consumer brands like Dairy Queen, Duracell and Fruit of the Loom, are down slightly this year — lagging the market, as the S&P 500 is up 6%. (The Nasdaq has done even better, surging 12%.)

Berkshire Hathaway also has a giant stock portfolio that Buffett helps run. Apple

(AAPL) is now by far the top holding for Berkshire, which also has big stakes in Bank of America

(BAC), Chevron

(CVX), American Express

(AXP) and Coca-Cola

(KO).

So is Berkshire’s portfolio, dare we say it, a little too boring? After all, if you want exposure to the big blue chips he owns, you could just buy an S&P 500 index fund.

Buffett, in fact, has promoted that idea to investors many times, arguing that most individual stock pickers will not be able to beat the market. The 92-year-old Buffett, who has a net worth of more than $100 billion according to Forbes, even said that he wants the trustee in charge of his will to put 90% of his wife’s inheritance in index funds.

Still, investors pay extremely close attention to Buffett every time he speaks. So traders will be poring over every word in his annual shareholder letter, which will be released the morning of Saturday, February 25, along with Berkshire’s latest earnings report.

Don’t expect any major surprises. Buffett will probably continue to extol the virtues of a long-term, patient approach to investing and give a bullish outlook for the US economy. And to his credit, that usually pays dividends: Berkshire stock was up 3% last year in a down market.

But market watchers are looking to see what Buffett says about the current inflationary scourge that has had a big impact on consumers and investors. He has lived through a couple of bouts of high inflation, after all.

“I would like to hear Buffett address what’s going on with interest rates and inflation up as much they are,” said Steve Check, president of Check Capital Management, an investment firm that owns Berkshire shares. “He talked a lot about how concerned he was in the 1970s and 1980s.”

Buffett has made numerous comments about inflation over the past few decades. And he was particularly nervous during the late 1970s and early 1980s, when soaring oil prices created an inflationary shock that severely hurt the economy.

“High rates of inflation create a tax on capital that makes much corporate investment unwise,” Buffett said in his 1980 shareholder letter to Berkshire investors. Buffett also described inflation as a gigantic parasitic “tapeworm” for businesses in 1981.

Buffett may also need to address how top-heavy and concentrated his portfolio has become. Berkshire’s five largest holdings make up about 75% of the company’s stock investments.

“The portfolio is significantly overweight [in] technology, energy, consumer staples, and financials relative to the S&P 500,” said Bill Stone, chief investment officer with The Glenview Trust Company, another Berkshire shareholder, in a report. Stone noted that Berkshire also has big stakes in Kraft Heinz

(KHC) and oil company Occidental Petroleum

(OXY).

Investors also want to hear more about what Buffett plans to do with Berkshire’s massive pile of cash. The company has more than $100 billion on its balance sheet. Are more acquisitions coming?

Buffett has talked for the past few years about how he’s longing to do an “elephant-sized” deal with Berkshire’s cash. Its most recent big deal was last year’s purchase of insurer Alleghany for $11.6 billion.

Still, the recent sluggish performance of Berkshire’s stock is unlikely to deter the faithful Buffett fans, many of whom are expected to make the annual pilgrimage to Omaha on May 6 for the company’s shareholder meeting.

Berkshire vice chairman Charlie Munger will likely be on stage with Buffett. So will Greg Abel, the chairman and CEO of Berkshire Hathaway Energy who Buffett has handpicked to eventually succeed him as Berkshire Hathaway CEO.

Buffett’s faith in the US economy is well founded. American consumers have proven to be remarkably resilient despite rampant inflation. The surprisingly strong retail sales gains for January is further proof of that.

Investors will get several more clues about consumer spending this week when several top retailers report earnings.

Dow components Walmart

(WMT) and Home Depot

(HD) are the highlights. Walmart

(WMT), which has a massive grocery business, should shed some light on how shoppers are coping with surging grocery prices.

Walmart could still benefit from its reputation as a place for bargains, though. That could even attract more affluent shoppers looking to save a buck.

“With inflation remaining elevated in the U.S., we expect Walmart to see continued trade-down benefits…particularly from higher-income customers,” said Arun Sundaram, an analyst at CFRA Research, in a report.

And investors will be looking for clues about the health of the housing market when Home Depot reports. Placer.ai, a research firm that measures foot traffic at top retailers, said in a recent report that consumers are returning to Home Depot and rival Lowe’s at almost pre-pandemic levels — even despite the housing slowdown.

One reason? Current homeowners may decide to spend more on renovations if they now plan to stick in their current house longer instead of looking to sell.

“Although the hot home-buying market is cooling off…foot traffic remains close to pre-pandemic levels due to a shift towards projects aimed at sprucing up a current living space,” said Placer.ai’s Ezra Carmel in a report. “It appears that projects that enhance the prospect of staying in place also have the ability to drive visits.”

Investors will be keeping close tabs on several other retailers set to report earnings this week, including TJX

(TJX) — the owner of TJ Maxx, Marshalls and HomeGoods — as well as online retailers eBay

(EBAY), Etsy

(ETSY), Overstock

(OSTK), Wayfair

(W) and China’s Alibaba

(BABA).

The US government is also set to release personal spending figures for January on Friday, another data point that will give a glimpse of consumers’ financial health.

Monday: US stock and bond markets closed for Presidents’ Day

Tuesday: US existing home sales; Eurozone and UK PMI; earnings from Walmart, Home Depot, Medtronic

(MDT), Fluor

(FLR), Molson Coors

(TAP), Caesars Entertainment

(CZR), Diamondback Energy

(FANG), Chesapeake Energy

(CHK), Palo Alto Networks

(PANW), Coinbase, La-Z-Boy

(LZB) and Hostess Brands

(TWNK)

Wednesday: Weekly crude oil inventories; earnings from Stellantis, Baidu

(BIDU), TJX, Garmin

(GRMN), Overstock, Wingstop

(WING), Nvidia

(NVDA), eBay, Etsy and Bumble

Thursday: US weekly jobless claims; US Q4 GDP (second estimate); Eurozone inflation; Turkey interest rate decision; earnings from Alibaba, Netease

(NTES), Keurig Dr Pepper

(KDP), Wayfair, Newmont, Domino’s

(DPZ), Papa John’s

(PZZA), Yeti

(YETI), Nikola, CNN owner Warner Bros. Discovery, Block

(SQ), Booking Holdings

(BKNG), Live Nation

(LYV), Carvana

(CVNA), Intuit

(INTU) and Beyond Meat

(BYND)

Friday: US personal income and spending; US PCE inflation figures; US new home sales; Japan inflation; Germany Q4 GDP; earnings from CIBC

(CM), Scripps

(SSP) and Cinemark

(CNK)

Saturday: Berkshire Hathaway earnings and Warren Buffett annual shareholder letter

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February 19, 2023
Gold giant Newmont’s $16.9 billion bid for Australia’s Newcrest clouded by deal doubts | CNN Business

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Melbourne
Reuters
—

Top gold producer Newmont

(NEM) Corp said it had made a $16.9 billion offer for Australian peer Newcrest

(NCMGF) Mining to build a global gold behemoth, although investors and analysts said it undervalued the target amid a leadership change.

Newcrest is seeking a new boss, with previous chief executive Sandeep Biswas having stepped down in December, while global interest rates are expected to peak this year and turn down, polishing the outlook for gold prices.

The Australian gold miner said that it was considering the all-share proposal in a filing that was a response to media speculation over the weekend. The initial feedback from shareholders is that they want a higher price, according to a person familiar with Newcrest’s deliberations.

“A good litmus test for a reasonably-priced deal is one where both seller and buyer feel somewhat aggrieved by selling out too low or by paying too much,” said Simon Mawhinney, chief investment officer at Allan Gray, Newcrest’s largest shareholder with a 7.36% stake. “It’s not clear to me that this kind of symmetry exists with these deal terms.”

Newcrest shares surged as much as 14.4% to A$25.60 ($17.77), the highest since May 2022, but remained below the implied current offer price of $27.16, suggesting investors were not convinced the deal would pan out. Shares closed 9.3% higher at A$24.53.

Newmont, which is already the world’s biggest gold producer by market capitalization and by ounces produced, said the combination represented “a powerful value proposition.”

Newcrest’s operations include its top class Cadia asset in Australia, an expanding footprint in North America and Papua New Guinea, and growth potential in copper, highly prized as key to the energy transition. BHP

(BBL) Group offered $6.4 billion for Australian copper miner Oz

(OZMLF) Minerals Minerals in December.

The Newmont proposal is via an agreed scheme of arrangement that would need to be recommended by the Newcrest board and subject to due diligence, various regulatory approvals and a shareholder vote that could stretch out for months.

The indicative offer implies a 21% premium to Newcrest’s last closing value of A$22.45, materially below the traditional 30% takeover premium, noted analyst Jon Mills of Morningstar, which values Newcrest at about A$31 per share.

Newcrest shareholders would receive 0.380 Newmont shares for every Newcrest share, giving them a 30% stake in the enlarged miner. It is a 4.7% improvement from a previous 0.363 per share offer that Newcrest already rejected for not providing enough value to shareholders, Newcrest disclosed on Monday.

If investors don’t back the deal, the board will be under pressure to improve Newcrest’s value, perhaps by breaking out assets like Havieron and Telfer in Australia, or Lihir in Papua New Guinea, said Barrenjoey analyst Dan Morgan.

Newcrest has been expected to announce a new chief executive this year after Biswas announced his retirement after eight years.

Sherry Duhe, formerly chief financial officer, who joined Newcrest in February last year, is interim chief executive while a global internal and external search for a replacement is underway.

Newcrest has been viewed as a target in recent years given its middling performance, but only a handful of buyers are big enough to take it out, said an investment banker who was not authorized to speak publicly about the matter.

The all-share nature of the offer meant the timing is more likely to be linked to Newcrest’s leadership vulnerability than a big call on the gold price, but it probably also reflects a constructive view on the precious metal, the banker added.

Risks are growing for gold to break higher, Morgan Stanley in a note on Jan. 16, noting that its macroeconomists were now forecasting lower rates and a weaker U.S. dollar, in tailwinds for the metal.

Morgan Stanley is looking towards a bull case of spot gold reaching $2,160 in the fourth quarter, up from $1,866 an ounce.

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February 5, 2023
Tim Cook agrees to a massive pay cut | CNN Business

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London
CNN
—

Apple CEO Tim Cook has agreed to cut his pay this year after shareholders rebelled.

The world’s largest tech company said it would reduce Cook’s target pay package to $49 million, 40% lower than his target pay for 2022 and about half Cook’s $99.4 million total compensation that he was granted last year.

The vast majority of Cook’s 2022 compensation — about 75% — was tied up in company shares, with half of that dependent on share price performance.

But shareholders voted against Cook’s pay package after Apple’s stock fell nearly 27% last year. The vote is nonbinding, but the board’s compensation committee said it took the vote into consideration.

“The compensation committee balanced shareholder feedback, Apple’s exceptional performance, and a recommendation from Mr. Cook to adjust his compensation in light of the feedback received,” the company said in its annual proxy statement released Thursday.

This year, the executive’s share award target has been cut to $40 million. About $30 million, or three-quarters, of that is linked to share price performance.

Cook’s base salary of $3 million will stay the same, the company said, as well as a $6 million bonus.

The board said it believes Cook’s new pay package is “responsive to shareholder feedback, while continuing both to align pay with performance and to recognize Mr. Cook’s outstanding leadership.”

The tech boss, who has headed up Apple since 2011, is estimated to have a personal wealth of $1.7 billion, according to Forbes.

Apple’s share price, like other tech companies, plunged last year as coronavirus lockdowns shuttered some of its factories in China. Supply chain bottlenecks and fears that a global economic slowdown would crimp demand also dragged down its stock.

In January last year, the tech giant became the first publicly traded company to notch a $3 trillion market capitalization, yet has has shed nearly $1 billion of that value since.

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January 13, 2023
Jack Ma to relinquish control of Ant group | CNN Business

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CNN
—

Chinese billionaire Jack Ma will no longer control Ant Group after the fintech giant’s shareholders agreed to reshape its shareholding structure, according to a statement released by the company on Saturday.

After the adjustment, Ma’s voting rights will fall to 6.2%, according to the statement and CNN calculations.

Before the restructure, Ma possessed more than 50% of voting rights at Ant via Hangzhou Yunbo and two other entities, according to its IPO prospectus filed with the exchanges in 2020.

Ant added in the statement that the voting rights adjustment, a move to make the company’s shareholder structure “more transparent and diversified,” will not result in any change to the economic interests of any shareholders.

Ant said its 10 major shareholders, including Ma, had agreed to no longer act in concert when exercising their voting rights, and would only vote independently, and thus no shareholder would have “sole or joint control over Ant Group.”

The voting rights overhaul came after Chinese regulators pulled the plug on Ant’s $37 billion IPO in November 2020, and ordered the company to restructure its business.

As part of the company’s restructuring, Ant’s consumer finance unit applied for an expansion of its registered capital from $1.2 billion to $2.7 billion. The China Banking and Insurance Regulatory Commission recently approved the application, according to a government notice issued late last week.

After the fund-raising drive, Ant will control half of its key consumer finance unit, while an entity controlled by the Hangzhou city government will own a 10% stake. Hangzhou is where Alibaba and Ant have been headquartered since their inceptions.

Ant Group is a fintech affiliate of Alibaba, both of which were founded by Ma.

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January 7, 2023
Elon Musk says he can’t get a fair trial in San Francisco, requests Tesla shareholder fraud trial be moved to Texas

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Elon Musk wants his upcoming fraud trial with Tesla Inc. shareholders moved out of San Francisco, saying jurors in the region will probably be biased against him because of recent layoffs at Twitter Inc. and “local negativity.”

The billionaire who runs both Tesla and Twitter proposed the trial be held in western Texas, where Tesla moved its headquarters to Austin from northern California about a year ago, according to a filing by his attorneys late Friday.

A substantial portion of the San Francisco-area jury pool “is likely to hold a personal and material bias against Mr. Musk as a result of recent layoffs at one of his companies as individual prospective jurors — or their friends and relatives — may have been personally impacted,” the lawyers wrote. “The existing baseline bias has been compounded, expanded, and reinforced by the negative and inflammatory local publicity surrounding the events.”

Investors suing Tesla and Musk, its chief executive officer, argue that his August 2018 tweets about taking the electric-car maker private with “funding secured” were “indisputably false” and cost them billions of dollars by spurring wild swings in Tesla’s stock price. Musk has maintained that Saudi Arabia’s sovereign wealth fund had agreed to support his attempt to take Tesla private. The trial is set to begin January 17.

“To be clear, this motion is not being brought simply because Mr. Musk has been the subject of negative news coverage. Mr. Musk has been a public figure for more than a decade and recognizes that being the subject of negative and even unfair media attention comes with the territory,” according to the filing. “The local media and political establishment have attempted to depict Mr. Musk as personally responsible for causing material economic harm to the significant number of potential jurors impacted by the layoffs and to the City of San Francisco as a whole.”

Musk has sparred with Twitter’s hometown of San Francisco after turning some space at the company’s Market Street headquarters into makeshift bedrooms, a possible violation of city building codes. Musk has also slammed Mayor London Breed over the city’s fentanyl crisis.

He bought Twitter for $44 billion in late October and installed himself as chief executive officer. After Tesla’s corporate headquarters moved to Austin in December 2021 the company still has a formidable presence in California. In a blog post this week, the company said it has 47,000 employees in the state.

Musk’s attorneys think western Texas would offer a fairer venue than northern California.

“Mr. Musk is far likelier to receive a fair trial in the Western District of Texas,” they wrote. “Mr. Musk has not been the subject of overwhelming, pervasive, and inflammatory press coverage by the local media in the Western District of Texas, like he has in this district. Texas news outlets publish far fewer stories about Mr. Musk.”

Our new weekly Impact Report newsletter examines how ESG news and trends are shaping the roles and responsibilities of today’s executives. Subscribe here.

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Dana Hull, Bloomberg

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January 7, 2023
What Is Equity and How Do You Calculate It for Shareholders?
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Almost everyone understands home equity — this private equity is the percentage of your home you own after paying down your mortgage. More technically, it’s the value of an asset, like property, minus its liabilities, like debt.

But the term “equity” also applies to things like businesses. As a business owner and entrepreneur, you need to know how equity affects your enterprises and how to calculate it for your shareholders, mainly before you go public. This article will discuss how to calculate equity for shareholders in detail.

How equity works

Equity is the value of an asset without its liabilities.

For example, say that you own a business building, like a retail storefront, worth $500,000. You’ve paid down $300,000 of that property’s mortgage, leaving you with $200,000 plus interest in liabilities. Thus, the equity in the property is (roughly) the $300,000 you own of the building.

This is a basic example, of course. You can look for and calculate the equity in everything from basic items to business enterprises and stock portfolios. Regardless, equity is vital so that investors, shareholders and other interested parties can determine the actual value of an asset.

Related: How to Safely Tap Home Equity in a Financial Emergency

Shareholders’ equity explained

Shareholders’ equity, therefore, is the net worth or total dollar value of the company that would be returned to shareholders of the company’s stock if:
- The company’s assets were to be liquidated.
- The company’s debts were to be paid off.
Put more simply, shareholders’ equity is the total equity left over that shareholders would have to divvy up between themselves if a company was liquidated entirely to settle any outstanding debts.

You can also think of stockholders’ equity (or SE) as the owners’ collective residual claim on company assets only after outstanding debts are satisfied. Shareholders’ equity is the same as a firm’s total assets minus its total liabilities.

It’s essential to know how to calculate share owners’ equity for a variety of reasons:
- Investors and analysts may need to determine the market value of a company and make suitable equity investments.
- A business’s board of directors can use this information to determine the business’s valuation for financial statements accurately.
While similar, shareholder equity is not the same thing as liquidation value. The company’s liquidation value is affected by the asset values of physical things like equipment or supplies.

Related: Debt vs. Equity Financing: Which Way Should Your Business Go?

Shareholders’ equity example

Here’s an example of shareholders’ equity:

Imagine that you have Company A, with total assets of $3 million. You have total liabilities of $1.2 million. If the company was liquidated, and its assets turned into $3 million, you would use some of that money to pay off the $1.2 million in liabilities.

What does that leave the shareholders? Approximately $1.8 million.

What components are included in shareholders’ equity?

For any given company, shareholders’ equity could be comprised of many different components. These include:
- Stock components, such as common, preferred and treasury stocks.
- Retained earnings — this is the percentage of net earnings not paid to shareholders as dividends (yet).
- Unrealized gains and losses.
- Contributed capital.
- Physical assets like business equipment and products.
When calculating shareholders’ equity using either of the below two formulas, it’s essential to add up all of these components when calculating the total asset value of a firm.

Related: Use a Balance Sheet to Evaluate the Health of Your Business

Positive vs. negative shareholders’ equity

Things can even get a little more complicated. There are positive and negative types of equity.

Positive shareholders’ equity means a company has enough assets to cover its debts or liabilities. Negative shareholders’ equity, on the other hand, means that the liabilities of a firm exceed its total asset value.

If the shareholders’ equity in a company stays negative, the balance sheet may display it as insolvent. In other words, the company could not liquidate itself and all of its assets and still pay off its debts, which could spell financial trouble for investors, shareholders, business owners and executives.

Many investors look at companies with negative shareholder equity as risky investments. While shareholder equity isn’t the only indicator of the financial hole for a company, you can use it in conjunction with other metrics or tools. When used with those tools, investors and potential shareholders can get a more accurate picture of the financial health of almost any enterprise.

While retained earnings are an essential part of shareholders’ equity (as the current percentage of net earnings is not given to shareholders as dividends), they should not be confused with liquid assets like cash. You can use several years of retained earnings for assets, expenses or other purposes to grow a business. It’s not “realized” cash at the moment.

How to calculate equity for shareholders

Fortunately, calculating equity for shareholders is relatively straightforward. Remember, equity is just the total asset value of the company minus its liabilities. You can calculate shareholder equity using the information found on any corporate balance sheet.

Here’s the formula:

Shareholder equity = total assets – total liabilities

Also called the balance sheet or accounting equation, the shareholder equity equation is one of the most critical tools when analyzing the company’s health.

Here’s how to calculate shareholder equity step-by-step:
- First, determine the company’s total assets on the balance sheet for a given period, such as one fiscal year. Be sure to add up all these assets carefully and correctly, or use an up-to-date balance sheet.
- Next, add up all of the total liabilities. Any up-to-date balance sheet should include this information. Liabilities include debts and outstanding expenses.
- Then determine the total shareholder equity, and add that number to the total liabilities.
- The remaining assets should equal the sum of total shareholder equity and liabilities.
A note when calculating total assets includes both current and noncurrent assets. If you aren’t aware, current assets are any assets you can convert to cash within one fiscal year.

This includes cash, inventory and accounts receivable. Noncurrent or long-term assets you can’t convert into cash in the same timeframe, such as patents, property and plant and equipment (PPE).

A note when calculating total liabilities: Liabilities also include both current and long-term liabilities. In keeping with the above, current liabilities are any debts due within one year, such as accounts payable or outstanding taxes.

Long-term liabilities are any debts or other obligations due for repayment later than one year in advance, such as leases, bonds payable and pension obligations.

Related: How to Protect Your Personal Finances From Business Risks

Secondary formula

The above shareholder equity formula should serve you well in most cases. Still, there’s a secondary formula that might be helpful as well.

Here’s the secondary formula:

Shareholders’ equity = share capital + retained earnings – treasury stock

This “share capital method” of calculating shareholders’ equity is also known as the investor’s equation. This formula sums up all the retained earnings of a business and the share capital, then subtracts treasury shares.

The retained earnings in this formula are the sum of a company’s total or cumulative profits after they pay dividends. Most shareholders receive balance sheets that display this number in the “shareholders’ equity” section.

This formula can give a slightly more accurate picture of what shareholders may expect if forced/decided to liquidate a company or exit. However, you can use both formulas to calculate equity for shareholders equally well.

The value of equity for shareholders

Equity is essential for shareholders for several reasons.

For starters, shareholder equity tells you the total return on investment versus the amount invested by equity investors.

Ratios such as return on equity, or ROE (the company’s net income divided by shareholder equity), can be used to measure how well the management team for a company uses equity from investors to generate a profit. ROE can tell investors how capable current executives are at taking investment cash and turning it into more money.

A company with positive shareholders’ equity has enough assets to cover liabilities. In an emergency, shareholders or investors could theoretically exit without taking substantial financial losses.

As mentioned earlier, you can also use SE with other financial metrics or ratios to accurately determine whether a company is a wise investment.

These metrics include share price, capital gains, real estate value, the company’s total assets and other vital elements of private companies. Because equity is essential for shareholders, it’s also crucial for business owners and people on executive boards to calculate.

Furthermore, equity affects the value of startups on the stock market. Suitable asset allocation will help businesses grow, resulting in a higher amount of money from stock purchasers and ETF managers.

Return on equity in detail

Here’s a deeper dive into return on equity. Analysts and investors use this metric to determine if a company uses equity or investment cash to profit efficiently and effectively.

Say that you have a choice to invest in a company and want to check out its return on equity before making a decision. You look at the company’s balance sheet and figure out that the return on equity is 12% and has stayed at 12% for several years.

Related: Debt vs. Equity Financing: Which Way Should Your Business Go?

That’s a pretty good return on any investment. It may indicate that the company is worth putting your own money into.

On the other hand, if the return on equity is low, like 1%, and the current shareholders’ equity for a company is negative, it’s a surefire sign that your investment dollars will be worth more if you invest them elsewhere.

Calculating equity is essential when propositioning investors for more funding and advising your shareholders. Now you know how to calculate equity for shareholders with two distinct formulas.

Looking for more resources to expand your professional financial knowledge? Explore Entrepreneur’s Money & Finance guides here
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December 24, 2022
This oil refiner is cutting 1,100 jobs — and giving billions of dollars to its shareholders | CNN Business

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CNN
—

Phillips 66 is cutting at least 1,100 jobs by the end of this year as the refining giant seeks to slash costs and steer a larger chunk of its soaring profits to shareholders.

At its investor day meeting in New York Wednesday, Phillips 66 detailed plans to slim down in a bid to save about $1 billion in annual costs.

In a presentation to shareholders, the refiner projected a workforce of under 12,900 people by the end of this year, down from 14,000 last year and 14,300 in 2020.

Phillips 66 spokesperson Bernardo Fallas said the smaller workforce was driven by a combination of attrition and eliminated positions.

Most of the job cuts have already taken place and were communicated to employees in late October, the spokesperson said, adding that recent attrition levels significantly lowered the number of employees impacted.

The layoffs come despite the fact that Phillips 66, one of the nation’s largest refiners, has raked in $9.1 billion in profit so far this year, up from just $44 million a year ago. The company’s share price has soared 45% so far this year, easily outperforming the 20% decline for the broader S&P 500.

“Phillips 66 is undergoing a company-wide effort to optimize its cost structure and reimagine its operating model to enable sustainable savings,” the spokesperson said.

Houston-based Phillips 66 said the cost-cutting moves, along with other steps, will give the company more financial firepower to boost stock buybacks and dividends.

Phillips 66 said it plans to return an additional $10 billion to $12 billion to shareholders between mid-2022 and the end of 2024.

“We are announcing a number of priorities designed to reward shareholders,” Phillips 66 CEO Mark Lashier said in a statement.

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November 9, 2022
Analysis: Elon Musk owning Twitter should give everyone pause | CNN Business

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CNN Business
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In late May, something unusual happened at Twitter. Shareholders voted to approve two proposals to change how the company operates — and did so against Twitter’s recommendations.

While shareholder votes are often nonbinding for management, these nonetheless pushed for good corporate governance practices. The first proposal required Twitter to compile a report on the risks of using concealment clauses, such as nondisclosure agreements, to ensure greater accountability for the company and protections for staff. The second proposal required Twitter to disclose its spending on elections.

The developments, however, were overshadowed by something else unusual happening at the company. Elon Musk, the mercurial billionaire, had agreed to buy Twitter for $44 billion the month before only to begin raising doubts about the deal soon after. The deal to take Twitter private, which was finally completed this week, likely renders the votes moot; Musk will have final say, not shareholders, a power he wields over numerous entities.

In the tech industry, and especially in the social media sector, annual shareholder meetings have long been something of a farce that captures the broader power imbalance in Silicon Valley. Rather than hold management accountable, shareholders typically run into an unbreachable wall of opposition from founders like Meta’s Mark Zuckerberg, Snap’s Evan Spiegel, and Google’s Larry Page and Sergey Brin, who control a majority of voting shares at their respective companies.

Twitter was different. The company billed itself as a “town square,” and also operated in a more democratic fashion than many of its peers, sometimes to its detriment. The company’s CEOs, of which there have been several over the years, clashed with the board and left or were pushed out. Twitter was vulnerable to an activist investor, shareholder proposals and ultimately a takeover from the world’s richest man. It was messy, sure. Zuckerberg once allegedly described Twitter as a “clown car.” But at least it was a clown car that partly belonged to the public.

Now, Musk joins the list of rich, white men who single-handedly control social platforms that collectively reach and shape the lives of billions of people around the world. And Musk, who will reportedly have “absolute control over Twitter” according to a shareholders’ agreement, promises to be uniquely disruptive.

In an effort to support his maximalist vision of “free speech,” the Tesla CEO plans to rethink Twitter’s content moderation policies and permanent bans for users who previously violated the platform’s policies, including former President Donald Trump. He also reportedly wants to gut Twitter’s staff. and has already fired several top executives.

Each of these moves has the potential to undo the work of employees who have labored to make Twitter a better platform with “healthy” conversations after years of complaints from users about harassment and toxic discourse. These moves could also upend the many corners of society shaped to some degree by Twitter. While it is barely a tenth the size of Facebook, Twitter has always had an outsized influence over the worlds of media, politics and tech.

That influence now belongs to Musk. There are two vastly diverging views of the billionaire. Many think of him as a generational figure who is a hybrid of Thomas Edison, Steve Jobs and the fictional Tony Stark — an innovative spirit who defies skeptics to build big businesses that better the world. The others can’t look past his history of false promises, erratic behavior and incendiary remarks.

To those in the first camp, Musk serving as the sole decider at Twitter may be cause for celebration. To those in the second, quite the opposite. But both camps have cause for concern.

More than any other figure, Musk has become the embodiment of a level of concentration of power and wealth that would have seemed almost unthinkable just a couple of decades ago.

The world’s richest man, worth more than the GDPs of many countries, is now in control of one of the world’s most influential social networks. One individual now owns or oversees businesses that are shaping the automotive and space industries, rethinking core infrastructure with freight tunnels and satellite internet, building humanoid robots and brain-interface machines and determining how millions connect with each other and find news.

Musk, prone to self-aggrandizement, insists his interest is to aid humanity, but he also insists that he knows best how to do so at each turn and does not seem to take criticism very well. He and his supporters have been known to lash out at detractors on Twitter, where he spends an unusual amount of time for someone running multiple companies. And now, rather than take his ball and going home when countless users criticize him for, say, offering unsolicited advice on how to end Russia’s war in Ukraine, he is buying the whole field for $44 billion.

In 2022, many people may be accustomed to the tremendous power wielded by tech founders. Jeff Bezos, a fellow billionaire and Musk’s rival, also owns a rocket company and used his vast wealth to acquire The Washington Post. But Musk isn’t buying a newspaper, he’s buying the news, or at least one of the key platforms that shape it.

It’s a level of unimpeachable power perhaps only rivaled by Zuckerberg, and there have been clear downsides in this sphere. Zuckerberg, whether he was being truthful or not, tried to downplay his platforms’ influence in the 2016 US presidential election only to spend years trying to extinguish scandals related to it. Facebook has since tried to push off its most difficult decisions to an independent oversight board, but the buck still stops with Zuckerberg. The same will go for Musk.

Elon Musk is a conglomerate, and each arm of his empire potentially gives him more leverage, real or imagined, in advocating for the others. Before lawmakers choose to speak out about concerns with Tesla, for example, some may also weigh whether Musk might discontinue offering his Starlink broadband internet system in Ukraine, or whether he might put his thumb on the scale to promote certain content on Twitter that may disadvantage them.

More immediately, however, owning a social network ensures Musk a different kind of personal power increasingly sought by other controversial billionaires, including Trump (with Truth Social) and Musk’s friend Ye (with a proposed deal to buy Parler). It is the power of knowing that, no matter what he says and no matter how offensive it may be, he can never be turned off.

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October 29, 2022
Elon Musk’s bumpy road to possibly owning Twitter: A timeline | CNN Business

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CNN Business
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A board seat accepted and then rejected. A stunning $44 billion takeover offer with uncertain financing. And a surprise early morning tweet putting the deal on hold, temporarily.

Even by the standards of Twitter, a company that has known plenty of chaos and dysfunction in its history, the weeks-long effort by billionaire Elon Musk to buy the company has proven to be uniquely tumultuous – and there’s no clear end in sight.

Should the deal go through, it would place the world’s richest man in charge of one of the world’s most influential social media platforms. The acquisition has the potential to upend not just Twitter itself but politics, media and the tech industry. The Tesla and SpaceX CEO has repeatedly stressed that his goal is to bolster what he calls “free speech” on the platform, by which he means all legal speech that complies with local laws in the markets where Twitter operates. He has also said he would reverse Twitter’s ban of former President Donald Trump.

But the attempt by Musk, a wildly successful entrepreneur with a history of erratic behavior, to buy Twitter has been viewed with some skepticism from the start. On the day he made his offer, Musk said: “I’m not sure I’ll actually be able to acquire it.” Some have questioned how he would finance the deal, especially as shares of Tesla

(TSLA), which he’s partially using to back his financing of the Twitter deal, and the broader tech sector have declined in the weeks since.

After Musk recently said he was temporarily pausing the deal so he could assess the amount of spam and fake accounts, it prompted speculation that the billionaire might be looking to renegotiate the deal – or back out of it entirely. His actions in the days that followed only reinforced that thinking.

Here is a look back at the many twists and turns in one of the most high-profile tech deals in recent memory.

Musk starts quietly buying up Twitter shares, building his stake in the company. But it would be months before he disclosed this fact to the public.

Musk’s stake in Twitter tops 5%, but that fact is not disclosed until the following month. Musk was obligated to disclose his stake within 10 days of crossing the 5% threshold, but waited 21 days to do so. During that time, he continued building up his stake.

The billionaire begins to make pointed statements about the platform from his account. “Twitter algorithm should be open source,” he wrote, with a poll for users to vote “yes” or “no.”

The following day, Musk tweets out another poll to his followers: “Free speech is essential to a functioning democracy. Do you believe Twitter rigorously adheres to this principle?”

Musk reaches out to Twitter cofounder and former CEO Jack Dorsey to “discuss the future direction of social media,” according to a company filing later put out by the company. The two tech founders are known to have a bit of a billionaire bromance on and off Twitter.

Twitter’s board and some of its leadership team meet with representatives from Wilson Sonsini, a law firm, and J.P. Morgan to discuss the possibility of Musk joining the company’s board, according a later securities filing. Dorsey is said to have told the board that “he and Mr. Musk were friends,” according to the filing.

In the meeting, the Twitter board discussed wanting Musk to agree to “‘standstill’ provisions”,” according to the filing. This would effectively “limit his public statements regarding Twitter, including the making of unsolicited public proposals to acquire Twitter (but not private proposals) without the prior consent of the Twitter Board.”

Musk is revealed to be Twitter’s largest individual shareholder, with a more than 9% stake in the company.

News of the purchase sends shares of the social media company soaring more than 20% in early trading and kicks off a wave of speculation about how Musk might push for changes on the platform.

Twitter CEO Parag Agrawal announces Musk will join Twitter’s board of directors. “Through conversations with Elon in recent weeks, it became clear to us that he would bring great value to our Board,” Agrawal says in a post on Twitter.

As part of the appointment, Musk agrees not to acquire more than 14.9% of the company’s shares while he remains on the board. His term on the board is set to go through 2024, according to a regulatory filing.

Agrawal announces that Musk has decided not to join the board after all. “I believe this is for the best,” Agrawal writes in a letter to the Twitter team.

The reversal opens the door for Musk to pursue a greater stake in the company – and frees him to tweet his many thoughts about the company.

Musk stuns the industry by making an offer to acquire all the shares in Twitter he does not own at a valuation of $41.4 billion. The cash offer represents a 38% premium over the company’s closing price on April 1, the last trading day before Musk disclosed that he had become the company’s biggest shareholder.

“I invested in Twitter as I believe in its potential to be the platform for free speech around the globe, and I believe free speech is a societal imperative for a functioning democracy. However, since making my investment I now realize the company will neither thrive nor serve this societal imperative in its current form. Twitter needs to be transformed as a private company,” Musk writes in his offer letter. “Twitter has extraordinary potential. I will unlock it.”

Twitter’s board of directors adopts a “poison pill” provision, a limited-term shareholder rights plan that potentially makes it harder for Musk to acquire the company.

Musk lines u p $46.5 billion in financing for the deal, including two debt commitment letters from Morgan Stanley and other unnamed financial institutions and one equity commitment letter from himself, according to a regulatory filing.

The billionaire also reveals that he has not received a formal response from Twitter a week after his acquisition offer. He said he is “seeking to negotiate” a definite acquisition agreement and “is prepared to begin such negotiations immediately” — an apparent reversal from his statement in his acquisition offer letter that it would be his “best and final” offer.

Although he is the richest person in the world, much of Musk’s wealth is tied up in Tesla stock, and some followers of the company speculate that it could be challenging for Musk to raise debt against the historically volatile stock.

Twitter announces that it has agreed to sell itself to Musk in a deal valued at around $44 billion. At a conference later in the day, Musk describes his offer to buy Twitter in characteristically sweeping terms as being about “the future of civilization,” not just making money.

At an all-hands meeting that afternoon, Twitter employees raise questions about everything from what the deal would mean for their compensation to whether former US President Donald Trump would be let back on the platform.

Filings reveal Musk sold $8.5 billion of his Tesla stock in the three days after Twitter board agreed to the sale for an average of $883.09 per share. The filings did not disclose the reason for the sale, but Musk appeared to be raising funds to buy Twitter.

Musk raises another $7 billion in financing for the deal. The new investors include Oracle founder Larry Ellison, cryptocurrency platform Binance and venture capital firm Sequoia Capital, according to a filing.

Musk aims to increase Twitter’s annual revenue to $26.4 billion by 2028, up from $5 billion last year, according to a New York Times report, citing Musk’s pitch deck presented to investors. To achieve that lofty goal, Musk intends to bolster Twitter’s subscription revenue and build up a payments business while decreasing the company’s reliance on advertising sales, according to the report.

Musk confirms what many have assumed for weeks: he would reverse Twitter’s Trump ban if his deal to buy the company is completed.

“I do think it was not correct to ban Donald Trump, I think that was a mistake,” Musk said. “I would reverse the perma-ban. … Banning Trump from Twitter didn’t end Trump’s voice, it will amplify it among the right and this is why it’s morally wrong and flat out stupid.”

Twitter confirms to CNN Business that the platform is pausing most hiring and backfills, except for “business critical” roles, and pulling back on other non-labor costs ahead of the acquisition. In addition, Twitter says general manager of consumer, Kayvon Beykpour, and revenue product lead, Bruce Falck, are leaving the company.

Musk tweets that the deal is on hold, linking to a Reuters report from nearly two weeks earlier, about Twitter’s most recent disclosure about its amount of spam and fake accounts. The figure cited in the report, however, is in line with prior quarterly disclosures.

“Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users,” Musk tweeted.

Shares of the social media site plummet after Musk’s announcement, dropping more than 10% at market open. Two hours after announcing the hold, Musk says he remains set on purchasing Twitter. “Still committed to acquisition,” he wrote.

Later in the day, Musk says his team is testing Twitter’s numbers and “picked 100 as the sample size number, because that is what Twitter uses to calculate

Musk tweets out that Twitter’s legal team accused him of breaking a nondisclosure agreement when the billionaire revealed the platform’s sample size for automated user checks is allegedly just 100 users.

“Twitter legal just called to complain that I violated their NDA by revealing the bot check sample size is 100! This actually happened,” wrote Musk.

The standoff over bot accounts continues as Musk exchanges a series of tweets with Agrawal over the issue. After Agrawal carefully explains how Twitter attempts to combat and measure spam accounts, Musk responds with a poop emoji.

Musk follows up with a somewhat more thoughtful question. “So how do advertisers know what they’re getting for their money?” Musk asked. “This is fundamental to the financial health of Twitter,” he added.

Musk announces that his acquisition of Twitter “cannot move forward” until he sees more information about the prevalence of spam accounts, claiming that the social media platform falsified numbers in filings. Without citing a source, he claims in a tweet that Twitter is “20% fake/spam accounts” and suggests Twitter’s previous filings with the SEC were misleading.

Later in the day, Musk posts a poll to his Twitter followers: “Twitter claims that >95% of daily active users are real, unique humans. Does anyone have that experience?” before calling on the SEC to evaluate the platform’s numbers. “Hello @SECGov, anyone home?” Musk tweets, in an apparent attempt to get the regulator to look into the matter.

In a statement, Twitter says it remains “committed to completing the transaction on the agreed price and terms as promptly as practicable.” Later, the company says it intends to “enforce the merger agreement.”

In a letter to Twitter’s head of legal, Musk threatens to walk away from his purchase of the platform, alleging that Twitter is “actively resisting and thwarting his information rights” as outlined by the deal.

In the letter, an attorney for Musk accuses the social media company of breaching the merger agreement by not providing the data he has requested on Twitter spam bots, stating that the lack of information gives him a right “not to consummate the transaction” and “to terminate the merger agreement.”

Musk moved to terminate the acquisition agreement. A lawyer representing him claimed in a letter to Twitter’s top lawyer that the company is “in material breach of multiple provisions” of the deal over its alleged failure to provide all the data Musk says he needs to evaluate the number of spam and fake accounts on the platform.

“For nearly two months, Mr. Musk has sought the data and information necessary to ‘make an independent assessment of the prevalence of fake or spam accounts on Twitter’s platform,’” the letter reads. “This information is fundamental to Twitter’s business and financial performance and is necessary to consummate the transactions contemplated by the Merger Agreement. … Twitter has failed or refused to provide this information.”

Twitter was not having it.

“The Twitter Board is committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plans to pursue legal action to enforce the merger agreement,” Twitter board chair Bret Taylor said in a tweet Friday, echoing earlier statements by the company that it planned to follow through with the deal. “We are confident we will prevail in the Delaware Court of Chancery.”

Twitter sued the Tesla billionaire in Delaware court in an attempt to force him to complete the deal.

The 62-page lawsuit, sprinkled with memes, tweets and a poop emoji, effectively highlighted the bizarre spectacle of the deal from the start. The company paints Musk as a non-serious potential owner — alleging at one point that he has “disdain” for the company, and at another saying, “Musk’s strategy is … a model of bad faith” — while seeking to compel him to become its owner. (Twitter’s board has an obligation to its shareholders to try to see the deal through if they believe it is in their best interest. The dispute could also end in a settlement.)

Twitter’s lawsuit against Musk over his move to terminate their $44 billion acquisition agreement will go to trial on Oct. 17 and run for five days, a Delaware judge ruled.

The decision came after Judge Kathaleen St. Jude McCormick, who is overseeing the case, previously ruled in Twitter’s favor that the proceedings could be expedited and take place in October. Twitter initially pushed for an October 10th start.

Musk’s legal team had asked for the trial to take place in 2023. Twitter’s legal team argued it was necessary to expedite the case in order to limit the “harm” to its business and to ensure the deal can be completed before Oct. 24, the “drop dead” date by which the two sides had previously agreed to close the deal.

Twitter whistleblower Peiter “Mudge” Zatko testifies before Congress in his first public appearance after his bombshell allegations against the social media company were reported in August by CNN and The Washington Post.

In a whistleblower disclosure sent to multiple lawmakers and government agencies in July, Zatko accused Twitter of failing to safeguard users’ personal information and of exposing the most sensitive parts of its operation to too many people, including potentially to foreign spies. Zatko — who was Twitter’s head of security from November 2020 until he was fired in January — also alleged company executives, including CEO Parag Agrawal, have deliberately misled regulators and the company’s own board about its shortcomings.

Zatko claimed in his testimony that Twitter is extremely vulnerable to being penetrated and exploited by agents of foreign governments, as well as detailed some of the personal information Twitter collects on users and alleged that the company does not know where the majority of its collected data goes.

Days earlier, a judge allowed Musk’s legal team to add arguments based on the whistleblower disclosure to its case.

Musk sends a letter to Twitter proposing to complete the deal as originally signed for $54.20 per share, citing people familiar with the negotiations. News of the letter, revealed in a security filing the next day, sends Twitter stock surging more than 20%, approaching the deal price for the first time in months.

Such an agreement could bring to an end a contentious, months-long back and forth between Musk and Twitter that has caused massive uncertainty for employees, investors and users of one of the world’s most influential social media platforms.

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October 9, 2022
Amazon is ‘investing heavily’ in the technology behind ChatGPT | CNN Business

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CNN
—

Amazon wants investors to know it won’t be left behind in the latest Big Tech arms race over artificial intelligence.

In a letter to shareholders Thursday, Amazon

(AMZN) CEO Andy Jassy said the company is “investing heavily” in large language models (LLMs) and generative AI, the same technology that underpins ChatGPT and other similar AI chatbots.

“We have been working on our own LLMs for a while now, believe it will transform and improve virtually every customer experience, and will continue to invest substantially in these models across all of our consumer, seller, brand, and creator experiences,” Jassy wrote in his letter to shareholders.

The remarks, which were part of Jassy’s second annual letter to shareholder since taking over as CEO, hint at the pressure that many tech companies feel to explain how they can tap into the rapidly evolving marketplace for AI products. Since ChatGPT was released to the public in late November, Google

(GOOG), Facebook

(FB) and Microsoft

(MSFT) have all talked up their growing focus on generative AI technology, which can create compelling essays, stories and visuals in response to user prompts.

Amazon’s goal, according to Jassy, is to offer less costly machine learning chips so that “small and large companies can afford to train and run their LLMs in production.” Large language models are trained on vast troves of data in order to generate responses to user prompts.

“Most companies want to use these large language models, but the really good ones take billions of dollars to train and many years, most companies don’t want to go through that,” Jassy said in an interview with CNBC on Thursday morning.

“What they want to do is they want to work off of a foundational model that’s big and great already, and then have the ability to customize it for their own purposes,” Jassy told CNBC.

With that in mind, Amazon on Thursday unveiled a new service called Bedrock. It essentially makes foundation models (large models that are pre-trained on vast amounts of data) from AI21 Labs, Anthropic, Stability AI and Amazon accessible to clients via an API, Amazon said in a blog post.

Jassy told CNBC he thinks Bedrock “will change the game for people.”

In his letter to shareholders, Jassy also touted AWS’s CodeWhisperer, another AI-powered tool which he said “revolutionizes developer productivity by generating code suggestions in real time.”

“I could write an entire letter on LLMs and Generative AI as I think they will be that transformative, but I’ll leave that for a future letter,” Jassy wrote. “Let’s just say that LLMs and Generative AI are going to be a big deal for customers, our shareholders, and Amazon.”

In the letter, Jassy also reflected on leading Amazon through “one of the harder macroeconomic years in recent memory,” as the e-commerce giant cut some 27,000 jobs as part of a major bid to rein in costs in recent months.

“There were an unusual number of simultaneous challenges this past year,” Jassy said in the letter, before outlining steps Amazon took to rethink certain free shipping options, abandon some of its physical store concepts and significantly reduce overall headcount.

Amazon disclosed in a securities filing Thursday that Jassy’s pay package last year was valued at some $1.3 million, and that the CEO did not receive any new stock awards in 2022. (When Jassy took over as CEO in 2021, he was awarded a pay package mostly comprised of stock awards that valued his total compensation package at some $212 million.)

Despite the challenges at Amazon, however, Jassy said in his letter that he finds himself “optimistic and energized by what lies ahead.” Jassy added: “I strongly believe that our best days are in front of us.”

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April 12, 2021