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by contidrift 1631 days ago
I thought profits meant "the amount of income that remains after accounting for all expenses, debts, additional income streams, and operating costs."
1 comments

Investments and bonuses are not part of any of those categories. Profits don't just get dumped into a Scrooge McDuck-esque money pool. Businesses obviously keep some money on hand, but it doesn't benefit anyone involved to have the money sit there forever. Profits are eventually used to fund expansions, acquisitions, improvements, charitable donations, rewards, etc.
It was my layman's understanding that R&D or building a new factory would count as "business expense" so thanks for clarifying that.
I don’t think the parent response is correct, though, if by profit (colloquially) we go by earnings that could be distributed to shareholders.

Sure, gross profit would not include either of those expenses. But operating profit would subtract research and development (e.g. the salaries and bonuses of the engineers working on the next process node) and depreciation on new factory (i.e. the cost of the new factory spread out over its useful lifetime - though it doesn’t include a factory under construction). Then you subtract interest and taxes to get to net profit. And TSMC has net profit margins of 39% in 2020!

Or, most cynically, returned to owners in the form of dividends/distributions or stock buybacks
There's nothing cynical about that, for most companies in the world their entire purpose and primary reason for existence - explicitly and openly stated, and mandated by their bylaws - is to generate this return on investment for the owners.

Like, this is the primary goal; any other uses of profit are valid only with the expectation that they will allow the owners to extract more money later.