Definition of Profit Sharing Plan
Profit Sharing Plan
A retirement plan generally funded by a percentage of company
profits, but into which contributions can be made in the absence of profits.
A retirement plan set up by an employer, into which employees can
contribute the lesser of $13,000 or 15 percent of their pay (as of 2004), which
is excluded from taxation until such time as they remove the funds from the account.
A retirement plan similar to a 401k plan, except that it is designed
specifically for charitable, religious, and education organizations that fall under
the tax-exempt status of 501(c)(3) regulations.
The ratio of net income to net sales.
A budgeting process using summary-level information to
derive various budget models, usually at the product family level.
A plan by U.S. Treasury Secretary James Baker under which 15 principal middle-income debtor
countries (the Baker 15) would undertake growth-oriented structural reforms, to be supported by increased
financing from the World Bank and continued lending from commercial banks.
The ratio of net income before taxes to net sales.
The cumulative book income plus any gain or loss on disposition of the assets on termination of the SAT.
A flexible benefits plan authorized under the Internal Revenue
Code allowing employees to pay for a selection of benefits with pay deductions,
some of which may be pretax.
cash or nontaxable benefits
A plan that provides retirement and long term disability income benefits to residents of Canadian provinces (excluding Quebec).
This equals the cash inflow from sales during the period minus the cash
outflow for expenses during the period. Keep in mind that to measure
net income, generally accepted accounting principles require the use of
accrual-basis accounting. Starting with the amount of accrual-basis net
income, adjustments are made for changes in accounts receivable,
inventories, prepaid expenses, and operating liabilities—and depreciation
expense is added back (as well as any other noncash outlay
expense)—to arrive at cash flow from profit, which is formally labeled
cash flow from operating activities in the externally reported statement
of cash flows.
The profit made by a division after deducting only those expenses that can be controlled by the
divisional manager and ignoring those expenses that are outside the divisional manager’s control.
Financial planning conducted by a firm that encompasses preparation of both
long- and short-term financial plans.
A method for understanding the relationship between revenue, cost and sales volume.
analysis a procedure that examines
changes in costs and volume levels and the resulting
effects on net income (profits)
Currency risk sharing
An agreement by the parties to a transaction to share the currency risk associated with
the transaction. The arrangement involves a customized hedge contract embedded in the underlying
Defined benefit plan
A pension plan in which the sponsor agrees to make specified dollar payments to
qualifying employees. The pension obligations are effectively the debt obligation of the plan sponsor.
Related: defined contribution plan
Defined Benefit Plan
A pension plan that pays out a predetermined dollar
amount to participants, based on a set of rules that typically combine the number
of years of employment and wages paid over the time period when each
employee worked for the company.
Defined contribution plan
A pension plan in which the sponsor is responsible only for making specified
contributions into the plan on behalf of qualifying participants. Related: defined benefit plan
Delayed issuance pool Refers to MBSs that at the time of issuance were collateralized by seasoned loans
originated prior to the MBS pool issue date.
Defined Contribution Plan
A qualified retirement plan under which the employer
is liable for a payment into the plan of a specific size, but not for the size
of the resulting payments from the plan to participants.
Dividend reinvestment plan (DRP)
Automatic reinvestment of shareholder dividends in more shares of a
company's stock, often without commissions. Some plans provide for the purchase of additional shares at a
discount to market price. Dividend reinvestment plans allow shareholders to accumulate stock over the Long
term using dollar cost averaging. The DRP is usually administered by the company without charges to the
Educational Assistance Plan
A plan that an employer creates on behalf of its
employees covering a variety of educational expenses incurred on behalf of
employees, for which they can avoid recognizing some income.
Employee stock ownership plan (ESOP)
A company contributes to a trust fund that buys stock on behalf of
Employee Stock Ownership Plan (ESOP)
a profit-sharing compensation program in which investments are made in
the securities of the employer
Employee Stock Ownership Plan (ESOP)
A fund containing company stock and owned by employees, paid for by ongoing contributions by the employer.
enterprise resource planning (ERP) system
a packaged software program that allows a company to
(1) automate and integrate the majority of its business processes,
(2) share common data and practices across the entire enterprise, and
(3) produce and access information in a realtime environment
Enterprise resource planning system
A computer system used to manage all company
resources in the receipt, completion, and delivery of customer orders.
An insurance program designed to provide funds for insured's dependents upon death of the insured, and to also conserve, as much as possible, the personal assets that the insured wants to bequeath to heirs.
A financial blueprint for the financial future of a firm.
The process of evaluating the investing and financing options available to a firm. It
includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in
the form of a financial plan, and then comparing future performance against that plan.
Arrangement used to finance inventory. A finance company buys the inventory, which is then
held in trust by the user.
gross margin, or gross profit
This first-line measure of profit
equals sales revenue less cost of goods sold. This is profit before operating
expenses and interest and income tax expenses are deducted. Financial
reporting standards require that gross margin be reported in
external income statements. Gross margin is a key variable in management
profit reports for decision making and control. Gross margin
doesn’t apply to service businesses that don’t sell products.
The profit a company makes before expenses and taxes are taken away.
The difference between the price at which goods or services are sold and the cost of sales.
Income The revenue generated from the sale of goods or services.
The result of subtracting cost of goods sold from sales. Synonymous with gross margin.
Revenue less cost of goods sold.
Gross profit margin
Gross profit divided by sales, which is equal to each sales dollar left over after paying
for the cost of goods sold.
Gross Profit Margin
Gross profit divided by revenue.
Hourly Rate Plan
A method for calculating wages for hourly employees that involves
the multiplication of the wage rate per hour times the number of hours
worked during the work week.
Defined benefit pension plans that are guaranteed by life insurance products. Related: noninsured plans
Insured Retirement Plan
This is a recently coined phrase describing the concept of using Universal Life Insurance to tax shelter earnings which can be used to generate tax-free income in retirement. The concept has been described by some as "the most effective tax-neutralization strategy that exists in Canada today."
In addition to life insurance, a Universal Life Policy includes a tax-sheltered cash value fund that cannot exceed the policy's face value. Deposits made into the policy are partially used to fund the life insurance and partially grow tax sheltered inside the policy. It should be pointed out that in order for this to work, you must make deposits into this kind of policy well in excess of the cost of the underlying insurance. Investment of the cash value inside the policy are commonly mutual fund type investments. Upon retirement, the policy owner can draw on the accumulated capital in his/her policy by using the policy as collateral for a series of demand loans at the bank. The loans are structured so the sum of money borrowed plus interest never exceeds 75% of the accumulated investment account. The loans are only repaid with the tax free death benefit at the death of the policy holder. Any remaining funds are paid out tax free to named beneficiaries.
Recognizing the value to policy holders of this use of Universal Life Insurance, insurance companies are reworking features of their products to allow the policy holder to ask to have the relationship of insurance to investment growth tracked so that investment growth inside the policy may be maximized. The only potential downside of this strategy is the possibility of the government changing the tax rules to prohibit using a life insurance product in this manner.
The movement of inventory from one company location to
another, usually requiring a transfer transaction.
Long-term financial plan
Financial plan covering two or more years of future operations.
Manufacturing resource planning
An integrated, computerized system for planning
all manufacturing resources.
manufacturing resource planning (MRP II)
a fully integrated materials requirement planning system that involves
top management and provides a basis for both strategic
and tactical planning
Manufacturing resource planning (MRP II)
An expansion of the material requirements planning concept, with additional computer-based capabilities in the areas of
direct labor and machine capacity planning.
Material requirements planning
A computerized system used to calculate material
requirements for a manufacturing operation.
Material requirements planning (MRP)
A computer-driven production methodology
that manufactures products based on an initial demand forecast. It tends to result in
more inventory of all types than a just-in-time (JIT) production system.
Materials requirement planning
Computer-based systems that plan backward from the production schedule
to make purchases in order to manage inventory levels.
materials requirements planning (MRP)
a computerbased information system that simulates the ordering and
scheduling of demand-dependent inventories; a simulation
of the parts fabrication and subassembly activities that are
required, in an appropriate time sequence, to meet a production
Money purchase plan
A defined benefit contribution plan in which the participant contributes some part and
the firm contributes at the same or a different rate. Also called and individual account plan.
See operating profit.
Net profit margin
Net income divided by sales; the amount of each sales dollar left over after all expenses
have been paid.
Defined benefit pension plans that are not guaranteed by life insurance products. Related:
Nonqualified Retirement Plan
A pension plan that does not follow ERISA and
IRS guidelines, typically allowing a company to pay key personnel more than
The profit made by the business for an accounting period, equal to gross profit less selling, finance, administration etc. expenses, but before deducting interest or taxation.
See earnings before interest and income tax (EBIT).
Operating profit margin
The ratio of operating margin to net sales.
a formulation of the details of implementing
and maintaining an organization’s strategic plan;
it is typically formalized in the master budget
Overfunded pension plan
A pension plan that has a positive surplus (i.e., assets exceed liabilities).
A fund that is established for the payment of retirement benefits.
A formal agreement between an entity and its employees, whereby the
entity agrees to provide some benefits to the employees upon their retirement.
a temporary absorption costing profit caused
by producing more inventory than is sold
Piece Rate Plan
A wage calculation method based on the number of units of production
completed by an employee.
Plan for reorganization
A plan for reorganizing a firm during the Chapter 11 bankruptcy process.
The entities that establish pension plans, including private business entities acting for their
employees; state and local entities operating on behalf of their employees; unions acting on behalf of their
members; and individuals representing themselves.
Planned amortization class CMO
1) One class of CMO that carries the most stable cash flows and the
lowest prepayement risk of any class of CMO. Because of that stable cash flow, it is considered the least risky CMO.
2) A CMO bond class that stipulates cash-flow contributions to a sinking fund. With the PAC,
principal payments are directed to the sinking fund on a priority basis in accordance with a predetermined
payment schedule, with prior claim to the cash flows before other CMO classes. Similarly, cash flows
received by the trust in excess of the sinking fund requirement are also allocated to other bond classes. The
prepayment experience of the PAC is therefore very stable over a wide range of prepayment experience.
Planned capital expenditure program
Capital expenditure program as outlined in the corporate financial plan.
Planned financing program
Program of short-term and long-term financing as outlined in the corporate
the process of creating the goals and objectives for
an organization and developing a strategy for achieving
them in a systematic manner
The length of time a model projects into the future.
Time horizon for a financial plan.
Planning, programming and budgeting system (PPBS)
A method of budgeting in which budgets are allocated to projects or programmes rather than to responsibility centres.
Plant and Equipment
Buildings and machines that firms use to produce output.
What’s left over after you subtract the cost of goods sold and all your expenses from sales.
The difference between income and expenses.
The general term profit is not precisely defined; it may refer to net
gains over a period of time, or cash inflows less cash outflows for an
investment, or earnings before or after certain costs and expenses are
deducted from income or revenue. In the world of business, profit is
measured by the application of generally accepted accounting principles
(GAAP). In the income statement, the final, bottom-line profit is generally
labeled net income and equals revenue (plus any extraordinary gains)
less all expenses (and less any extraordinary losses) for the period. Inter-
nal management profit reports include several profit lines: gross margin,
contribution margin, operating profit (earnings before interest and
income tax), and earnings before income tax. External income statements
report gross margin (also called gross profit) and often report one
or more other profit lines, although practice varies from business to
business in this regard.
Profit and Loss account
A financial statement measuring the profit or loss of a business – income less expenses – for an accounting period.
profit and loss statement (P&L statement)
This is an alternative moniker
for an income statement or for an internal management profit report.
Actually, it’s a misnomer because a business has either a profit or a loss
for a period. Accordingly, it should be profit or loss statement, but the
term has caught on and undoubtedly will continue to be profit and loss
Profit before interest and taxes (PBIT)
a responsibility center in which managers are responsible for generating revenues and planning and controlling all expenses
An entity within a corporation against which both revenues and costs are
recorded. This results in a separate financial statement for each such entity, which
reveals a net profit or loss, as well as a return on any assets used by the entity.
A division or unit of an organization that is responsible for achieving profit targets.
Indicator of profitability. The ratio of earnings available to stockholders to net sales.
Determined by dividing net income by revenue for the same 12-month period. Result is shown as a
the ratio of income to sales
Profit Margin Ratio
A measure of how much profit is earned on each dollar of sales. It
is calculated by dividing the net income available for distribution to
shareholders by the total sales generated during the period.
This concept refers to a separate source of revenue and
profit within a business organization, which should be identified for
management analysis and control. A profit module may focus on one
product or a cluster of products. profit in this context is not the final, bottom-
line net income of the business as a whole. Rather, other measures
of profit are used for management analysis and decision-making purposes—
such as gross margin, contribution margin, or operating profit
(earnings before interest and income tax).
Ratios based on sales revenue for a period. A measure of
profit is divided by sales revenue to compute a profit ratio. For example,
gross margin is divided by sales revenue to compute the gross margin
profit ratio. Dividing bottom-line profit (net income) by sales revenue
gives the profit ratio that is generally called return on sales.
an incentive payment to employees that is
contingent on organizational or individual performance
a visual representation of the amount
of profit or loss associated with each level of sales
The present value of the future cash flows divided by the initial investment. Also called
the benefit-cost ratio.
See cash value added.
A method for determining the profitability of an investment. It is
calculated by dividing the present value of the future net cash flows
by the initial cash investment.
Ratio of net present value to initial investment.
profitability index (Pl)
a ratio that compares the present value of net cash flows to the present value of the net investment
Ratios that focus on the profitability of the firm. profit margins measure performance
with relation to sales. Rate of return ratios measure performance relative to some measure of size of the
property, plant, and equipment
This label is generally used in financial
reports to describe the long-term assets of a business, which include
land, buildings, machinery, equipment, tools, vehicles, computers, furniture
and fixtures, and other tangible long-lived resources that are not
held for sale but are used in the operations of a business. The less formal
name for these assets is fixed assets, which see.
Property, plant, and equipment
This item is comprised of all types of fixed assets
recorded on the balance sheet, and is intended to reveal the sum total of all tangible,
long-term assets used to conduct business.
pseudo microprofit center
a center for which a surrogate
of market value must be used to measure output revenue
Related to : financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit.