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Where does profit go in a company/business?

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    Okay, so this might not even suit TSR. But I wanted to know, where does profit actually go in a company/business? For example, Tesco, one of the biggest retailers in the world. So it makes a load of money for all its stock, then enough to pay all the workers. They obviously make a huge profit, where does it go? The CEOs just get huge payrolls? Obviously in small businesses profit would go to expanding the business. But Tesco is already huge what does it do with it all? A better example is Google. They must have an abundance of money just floating around.
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    (Original post by pnorm)
    The CEOs just get huge payrolls?
    True. What left goes to good causes, pays off the shareholders, staff wages, meeting material costs of the business ad whats left usially gets re-invested into the business.
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    (Original post by pnorm)
    But Tesco is already huge what does it do with it all?
    They make it even bigger.
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    Bonuses, dividends, investment, hoarding
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    Dividends to shareholders.
    Expansion (sure, in England they're huge, but there are other countries where they are developing)
    Rainy day resources.
    A lot probably goes into vertical integration too (In order to make more goods instead of just selling them), but it's unlikely to hear much about that on the news.

    ^That's aimed at your Tesco example.



    Google would do the same, plus heavy investment into Research & Development department, focussing on product development. Google Google Glasses ( ) and you'll see a perfect example of where their profits are going.
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    Pensioners, mostly.

    Seriously, since retention/reinvestment generates further profit in future and ups the share price, the simplest answer is that it all goes to shareholders. In the UK, the biggest shareholders in major companies are pension funds. (So no, it's not OK to steal from faceless corporations, you're stealing from your granny.)
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    (Original post by M4LLY)
    True. What left goes to good causes, pays off the shareholders, staff wages, meeting material costs of the business ad whats left usially gets re-invested into the business.
    Most of those expenses have already been taken off before they arrive at the profit figure.
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    They keep the money haha apple has 100 Billion $ at hand but cant spend a lot of it in the us as its in foreign bank accounts and it will get taxed heabily if they transfer it to the us.

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    Dividends and reinvestment into the business mainly...
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    They retain it for the future in case of emergencies, give to good causes, invest in research and development (e.g. Apple) to have to top technology/products/services, invest it into marketing and other areas of the business, growth etc
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    Remembering of course that profit is very different to cash. Just because you made a big profit doesn't mean you've got loads of cash sitting around.
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    (Original post by walterwhite123)
    Remembering of course that profit is very different to cash. Just because you made a big profit doesn't mean you've got loads of cash sitting around.

    Not really. Profit is literally revenue minus costs, and is very much liquid assets. Assets are not necessarily cash, as non-current can be factories, equipment etc. but profit is cash.
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    (Original post by HeyyImRyan)
    Not really. Profit is literally revenue minus costs, and is very much liquid assets. Assets are not necessarily cash, as non-current can be factories, equipment etc. but profit is cash.
    profit isn't cash, you can make a profit but still have no cash.
    If you let people buy on credit you don't get cash, but you make profit.
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    (Original post by pnorm)
    Okay, so this might not even suit TSR. But I wanted to know, where does profit actually go in a company/business? For example, Tesco, one of the biggest retailers in the world. So it makes a load of money for all its stock, then enough to pay all the workers. They obviously make a huge profit, where does it go? The CEOs just get huge payrolls? Obviously in small businesses profit would go to expanding the business. But Tesco is already huge what does it do with it all? A better example is Google. They must have an abundance of money just floating around.
    You can generally find this out by looking at the Annual Report (for large companies) - a PLC like Tesco has to make this public. This is the one for Tesco.

    http://ar2011.tescoplc.com/pdfs/busi...financials.pdf

    So in 2011, Tesco made a group trading profit of £3.6 billion. They paid a dividend per share of 10.1p, totalling nearly £1.5bn, retained a load of money and invested a load in capital.

    For smaller companies, they have to file accounts at Companies House and on the Companies House website you can download the Annual Accounts for most businesses in the UK for a small charge.
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    (Original post by DudeRugs)
    profit isn't cash, you can make a profit but still have no cash.
    If you let people buy on credit you don't get cash, but you make profit.
    You don't have cash flow, you still get cash (albeit eventually), so surely it would still be regarded as cash? :confused:
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    (Original post by HeyyImRyan)
    You don't have cash flow, you still get cash (albeit eventually), so surely it would still be regarded as cash? :confused:
    This kind of thing is revealed in the accounts of the company - at the end of the financial year, money still owed to a business is included in the accounts and treated as part of the calculations for taxable profit. Of course, plenty of companies go bust simply because they cannot collect a large debt, for example, one owed to them by another company which has in turn gone into liquidation.
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    (Original post by HeyyImRyan)
    You don't have cash flow, you still get cash (albeit eventually), so surely it would still be regarded as cash? :confused:
    You get the cash eventually, but they still count as 2 different things. It's one of the main reasons why profitable businesses fail.

    If you sell a product on 3 month credit, it will count as a profit once you sell the product, but it wont count as cash until 3 months time when you get the cash from it.
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    Reinvested in the business, dividends to shareholders, bonuses / pay increases for employees or just kept in reserve accounts / other investments.
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    (Original post by HeyyImRyan)
    Not really. Profit is literally revenue minus costs, and is very much liquid assets. Assets are not necessarily cash, as non-current can be factories, equipment etc. but profit is cash.
    Profit is not cash. One is in the P&L and one is in the balance sheet. They are not the same.
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    (Original post by HeyyImRyan)
    You don't have cash flow, you still get cash (albeit eventually), so surely it would still be regarded as cash? :confused:
    No, it is not the same at all. It is perfectly possible for a company to make profits year after year and still go out of business.

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