“Where Has The Money Gone Now?”

LOL the money was never there in the first place.

This is a classical case of conflating “Stock” with “Flow”.

In a great example of obfuscation, savvy pols point to people with bungalow and car and property and berate them for not paying income tax. Gullible citizenry is misled and believes there’s tax evasion and black money and crime.

When that’s not necessarily the case at all.

You can acquire all the wealth in the world from inheritance or gift or past income or whatever legitimate means. But that does not mean that you have taxable income. As a matter of fact, it does not even have to mean that you have a sizeable bank balance. Income tax is payable only if you have taxable income. If you don’t have taxable income, you pay no income tax. That’s perfectly legal. Your wealth does not matter. (Note: We’re not talking about Wealth Tax, which does not exist in many jurisdictions where this ruse is used commonly.)

Wealth is not Income.

Likewise, Valuation is not Money in Bank.

Valuation is the value assigned to a company by its investors / shareholders. It’s a “stock” item.

Employee costs like Salaries, provident fund, medical insurance, rent for office space and so on are met from money in bank. That comes out of revenues. They’re all “flow” items.

Stock does not equal Flow.

Valuation does not equal Revenues or Profits or Cash in Hand / Bank.

During a lockdown, there are no revenues. Therefore, there’s no Cash in Hand / Bank. Therefore, a company lacks the ability to bear employee costs. Therefore, the company needs to fire so many employees. Its billions in valuation is immaterial.

To expand to a broader context, P&L items like Revenues, Advertising Spends, Interest, etc. are Flow items, whereas Balance Sheet items like Current Assets, Current Liabilities, Cash in Hand, etc. are Stock items. GDP is Flow whereas Wealth and Market Cap are Stock.

S0me more examples follow: