What Is Profit? Profit describes the financial benefit realized when revenue generated from a business activity exceeds the expenses, costs, and taxes involved in sustaining the activity in question. Any profits earned funnel back to business owners, who choose to either pocket the cash, distribute it to shareholders as dividends, or reinvest it back into
What Is the Profitability Index (PI)? The profitability index (PI), alternatively referred to as value investment ratio (VIR) or profit investment ratio (PIR), describes an index that represents the relationship between the costs and benefits of a proposed project. The profitability index is calculated as the ratio between the present value of future expected cash
What Is the Profitability Index (PI) Rule? The profitability index rule is a decision-making exercise that helps evaluate whether to proceed with a project. The index itself is a calculation of the potential profit of the proposed project. The rule is that a profitability index or ratio greater than 1 indicates that the project should
What Is Profit before Tax (PBT)? Profit before tax is a measure that looks at a company’s profits before the company has to pay corporate income tax. It essentially is all of a company’s profits without the consideration of any taxes. Profit before tax can be found on the income statement as operating profit minus
What Is a Profit Center? A profit center is a branch or division of a company that directly adds or is expected to add to the entire organization’s bottom line. It is treated as a separate, standalone business, responsible for generating its revenues and earnings. Its profits and losses are calculated separately from other areas
What Is Profit Margin? Profit margin is one of the commonly used profitability ratios to gauge the degree to which a company or a business activity makes money. It represents what percentage of sales has turned into profits. Simply put, the percentage figure indicates how many cents of profit the business has generated for each dollar
What Is Private Equity Real Estate? Private equity real estate is an alternative asset class composed of professionally managed pooled private and public investments in the real estate markets. Investing in private equity real estate involves the acquisition, financing, and ownership (either direct or indirect) of property or properties via an investment fund. Private equity
What Is a Private Finance Initiative (PFI)? A private finance initiative (PFI) is a way of financing public sector projects through the private sector. PFIs alleviate the government and taxpayers of the immediate burden of coming up with the capital for these projects. Under a private finance initiative, a private company handles the up-front costs
What Is a Private Foundation? A private foundation can be a charitable organization that, while serving a good cause, does not qualify as a public charity by government standards. Private foundations can also be nonprofit organizations whose trustees or directors manage funds and programs. They are usually created via a single primary donation, called an
What is a Private Good? A private good is a product that must be purchased to be consumed, and consumption by one individual prevents another individual from consuming it. In other words, a good is considered to be a private good if there is competition between individuals to obtain the good and if consuming the
