Some companies like Newman’s Own say “100% of profits to charities”. Obviously, their employees still get paid, and the fact that new cookie brands come out means that some of the money is re-invested in the company. Presumably those two financial factors are not considered part of profits since they aren’t going to charity.
So at other companies, where do the profits go? If they aren’t going into either the company or any of its employees (including the CEO), where else could it go and still be considered profit?
In: Economics
When companies end up with excess profits they end up paying dividends to the shareholders or buy back the shares from them. This is why owning shares in a company that is doing will can be so profitable. Whenever they end up with profits you will get some of it.
Profits are after expenses (which include salaries and money spent on the company), they are revenues (total money made) minus expenses (total money spent).
For profit companies can use that money any way they want. they can give it to their board members, if its owned privately the owner can simply pocket it, they can put it in a bank and let it sit, they can use it to buy other companies, they can spend it on fancy bar stools for their break room.
Its just like you as a person, you make money and you pay your bills, what you do with the leftover money is really up to you.
They’re going to the owners of the firm or toward capital investments (e.g. new buildings and the like).
Profits are whatever money left over after paying all expenses. So “All profits” means for every $5 box of cookies you bought, if they spent $2 on ingredients, $1 on labor, 50 cents on factory, 50 cents on packaging and distribution, 50 cents on marketing, and then 50 cents that remains are the profit on that box of cookies. That’s what would be donated if 100% of profits go to charity.
Normally, profits are retained in the business for investment (save to build a new factory down the road) or to get company through leaner times (like now, when they still need to pay rent and payroll despite sales being down), or get paid out to owners/shareholders as dividends.
I think the missing piece here is chronology/flexibility of the money.
The company needs to pay its people and needs to pay its expenses. After the company has paid everything that it is obligated to pay, so all expenses and previously agreed upon salaries, it has the rest of the money as profit. After it has calculated what it has for profit, it can decide where this profit money goes. If it goes to bonuses to the CEO or board members, this is considered to be an “extra” piece of their salary, above and beyond what they previously agreed would be paid. So this money is still considered profit because it didn’t -need- to be paid as a bonus.
The money is flexible as profit. It could have gone to something else. That’s really what profit means here. It’s flexible money that the company has leftover and can decide what to do with it, after its finished accounting for all of its expenses.
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