Alan B. Pearce wrote:

>> Just to clarify how I understand it (this may help understanding my
>> posts): I consider "profit" in this discussion all the money that real
>> people take out of the business: workers' salaries, investors'
>> dividends, and, yes, CEO salaries :)  This includes also growth of the
>> company's assets. In a way, taxes paid and money given to charity are
>> also part of the generated profit, in that this is money that benefits
>> (in theory, at least) the community.
> 
> I wouldn't include wages and salaries as part of the profit, these are
> expenses involved in generating the profit. They also appear in some
> non-profit organisations. 

That's exactly the point. I know that in traditional accounting (as imposed
by tax laws), salaries are not part of the profit, but then you end up with
non-profits where someone makes $10M a year as "salary". While this may be
legally a non-profit without profit, for the sake of this discussion I
think those $10M are profit disguised as salary. 

Most owners of small companies know that they can to quite some degree
exchange their salary for their profit, and they do so considering what
causes them less tax, among other considerations. In this sense they are
interchangeable.

I also don't quite see the difference in principle (I of course see it in
legal terms and tax-wise) between the "cost" that a salary causes to the
company and the "cost" that dividends (that may be deemed necessary to make
the stock attractive enough) cause the company. The one invests work and
gets paid a salary, the other invests money and gets paid a dividend. If
the offered salary is too low, the people with "good work" to offer take it
elsewhere. If the offered dividends are too low, the people with enough
money to invest take it elsewhere. 

So I think it makes more sense to use as profit everything (at least as far
as it is present in the balance sheet or can be represented by money) that
people take out of the operation.

Gerhard

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