A corporation that does not distribute all of its profit to stockholders has retained earnings.
These are the profits that a company will keep within the business in order to grow their assets and funds for future investments.
The money can be used for other purposes such as paying down debt.
Buying new equipment, or reinvesting into the company by purchasing more shares of stock or acquiring another company.
Profit Allocation is a term that describes how money can be allocated to different divisions of a company.
This helps understand the amount of money each division has to allocate for its own operations and investments, including debt repayments.
Remember, we are not writing numbers or bullet points in these paragraphs!
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The most basic form profit allocation would consist of dividing up total net income into three categories.
Current assets (cash), long-term assets (such as property) and finally liabilities.
Major companies such as Philip Morris International use an even more detailed approach which breaks down expenses into short-term operating costs.