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
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.
Latest Answers