profit center

noun
Updated on: 13 Oct 2017

Definition of profit center

:a part of a corporation or its product line that is an important source of profits

Recent Examples of profit center from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'profit center.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

First Known Use of profit center

1955


Financial Definition of PROFIT CENTER

profit center

What It Is

A profit center is a part of a company that directly adds to its profits.

How It Works

A company may have a variety of distinct departments, divisions, or operating groups, each with separate responsibilities and each contributing to the overall success of a company.  Cost centers, for example, such as accounting, auditing, or inventory control, have costs, but do not contribute revenues.  As a result, they do not produce profits.  A profit center, on the other hand, is directly involved in producing revenues, and, if it is managed well, its revenues exceed its costs and it produces a profit.

Why It Matters

A profit center must be carefully managed to ensure that the sales generating activities lead to more revenues than the cost of those activities, thus producing a profit.  Creating separate profit centers within a company allow the management to evaluate the profitability of each unit or business activity.   When assessing a company, it is useful for an investor to classify various components of a business into cost and profit centers, allowing the investor to evaluate the prospects of various divisions on a stand-alone or restructured basis and the allocation or elimination of the costs found in the cost centers.


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