If a pvt ltd company hires someone on the basis of net profit sharing than how to calculate net profits which take care of the expected expenses toward future expension, contigencies or any other purpose. Is it right under corporate law to keep some % of gross profits for expension and contigencies etc? What % is normally assigned for these purposes and why?
Regards, Anil
Dear Mr.Anil,
For the expected expenses toward future expension (Expansion),
1)the future expansion which is under plan in term of rupees needs to be worked out.
2) & Work out How this expansion is going to be funded. (Debt etc)
3) therefore, expenses related to funding like service charges, interest payment as well as principal repayment should be figured out.
4) overall percentage on above points should be worked out to know outflow of funds for future expansion.
5) and for how many years such out flow is going to take place.
6) and in how many years returns (inflow) are expected from that outflow.
7) Discounting of the same should be worked out based on weighted avg. cost in terms of percentage per annum.
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