Profits, Windfalls

Accounting Profit (or Net Income) reflects a firm’s financial performance for a particular year. If those profits are not viewed as due to excellent entrepreneurial decisions or risk-taking activities but to ‘luck’, the profits might be labeled as¬†windfalls. For example, if a domestic firm pumps petroleum and a war reduces access to external sources, the domestic price could sky-rocket – resulting in high returns for domestic producers. Political bodies will be tempted to tax those returns since socially, the returns my be viewed as unjust or unfair.