Social enterprise

A social enterprise is an organization that applies commercial strategies to maximize improvements in human and environmental well-being, rather than maximising profits for external shareholders. Social enterprises can be structured as a for-profit or non-profit, and may take the form of a co-operative, mutual organization, a social business, or a charity organization.[1] Many commercial enterprises would consider themselves to have social objectives, but commitment to these objectives is motivated by the perception that such commitment will ultimately make the enterprise more financially valuable. Social enterprises differ in that, inversely, they do not aim to offer any benefit to their investors, except where they believe that doing so will ultimately further their capacity to realize their social and environmental goals. The term has a mixed and contested heritage due to its philanthropic roots in the US, and cooperative roots in the UK, EU and Asia.[2] In the US, the term is associated with 'doing charity by doing trade', rather than 'doing charity while doing trade'. In other countries, there is a much stronger emphasis on community organising, democratic control of capital and mutual principles, rather than philanthropy.[3] In recent years, there has been a rise in the concept of social purpose businesses which pursue social responsibility directly, or raise funds for charitable projects.[4] Many entrepreneurs, whilst running a profit focused enterprise that they own, will make charitable gestures through the enterprise, expecting to make a loss in the process. However, social enterprises are differentiated through transparent evidence that their social aims are primary, and that profits are secondary. There are several important profit measures in common use. Note that the words earnings, pr fit and income are used as substitutes in some of these terms (also depending on US or UK usage), thus inflating the number of profit measures. Gross profit equals sales revenue minus cost of goods sold (COGS), thus removing only the part of expenses that can be traced directly to the production or purchase of the goods. Gross profit still includes general (overhead) expenses like R&D, S&M, G&A, also interest expense, taxes and extraordinary items. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) equals sales revenue minus cost of goods sold and all expenses except for interest, amortization, depreciation and taxes. It measures the cash earnings that can be used to pay interest and repay the principal. Since interest is paid before income tax is calculated, the debtholder can ignore taxes. Earnings Before Interest and Taxes (EBIT) or Operating profit equals sales revenue minus cost of goods sold and all expenses except for interest and taxes. This is the surplus generated by operations. It is also known as Operating Profit Before Interest and Taxes (OPBIT) or simply Profit Before Interest and Taxes (PBIT). Earnings Before Taxes (EBT) or Net Profit Before Tax equals sales revenue minus cost of goods sold and all expenses except for taxes. It is also known as pre-tax book income (PTBI), net operating income before taxes or simply pre-tax Income. Earnings After Tax or Net Profit After Tax equals sales revenue after deducting all expenses, including taxes (unless some distinction about the treatment of extraordinary expenses is made). In the US, the term Net Income is commonly used. Income before extraordinary expenses represents the same but before adjusting for extraordinary items. Earnings After Tax (or Net Profit After Tax) minus payable dividends becomes Retained Earnings.

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