Profit – What Is It and Is It Legitimate?Book / Produced by Individual TOW Project member
Most simply put, profit is the excess of income over costs. Another way to express it is as a return on the investment made in a business after all expenses are accounted for.
It is fair and reasonable to expect a return on the investment of capital that a person or group makes when starting and running a business. By choosing to invest capital in the business, the owner has lost the opportunity to invest the money elsewhere (like in a bank savings account where it might earn, say, 7% interest). He or she deserves to be compensated for this “opportunity cost”.
Many would argue that legitimate profit should also reflect the level of risk the individual or group is taking. An example of this is Wayne’s business of buying cars in Japan and importing them into New Zealand. We believe it is fair to factor in the risks he takes; there is a genuine chance that some of that money will be lost. Furthermore, without profit there can be no re-investment in stock and plant, which means that Wayne’s business will ultimately run down and fail.
So in the economic system we are part of, profit is both legitimate and necessary. However, this is not to say that economic profit should be the primary reason for commercial operation. Business is fundamentally intended to serve – providing goods and services that contribute to the wellbeing and development of the community. Profit is a necessary part of this – but not the only reason for a company’s existence. A Christian view of business won’t minimize profit-making, but neither will it raise it above all other concerns.
Jim Collins and Jerry Porras, in their well-known study of visionary companies, note that,
Profitability is a necessary condition for existence and a means to more important ends, but it is not the end in itself … Profit is like oxygen, food, water, and blood for the body; they are not the point of life, but without them, there is no life.