Calculation new profit sharing ratio

A profit sharing ratio is a percentage of the profits that is distributed to the partners or shareholders of a business. To calculate a new profit sharing ratio, you will need to follow these steps:

  1. Determine the total profits of the business: This is the total amount of money that the business has earned after deducting all expenses and taxes.
  2. Determine the current profit sharing ratio: This is the percentage of the profits that is currently being distributed to the partners or shareholders.
  3. Determine the desired new profit sharing ratio: This is the percentage of the profits that you want to distribute to the partners or shareholders in the future.
  4. Calculate the total amount of profits that will be distributed under the new profit sharing ratio: This is the total amount of profits that will be distributed to the partners or shareholders under the new profit sharing ratio.
  5. Calculate the total amount of profits that will be retained by the business: This is the total amount of profits that will be retained by the business under the new profit sharing ratio.

Here is an example of how to calculate a new profit sharing ratio:

Let's say that a business has total profits of $100,000 and a current profit sharing ratio of 50%. This means that the business is currently distributing 50% of its profits to its partners or shareholders.

The desired new profit sharing ratio is 60%. To calculate the total amount of profits that will be distributed under the new profit sharing ratio, you would multiply the total profits by the new profit sharing ratio:

$100,000 x 0.60 = $60,000

This means that under the new profit sharing ratio, the business will distribute $60,000 to its partners or shareholders.

To calculate the total amount of profits that will be retained by the business, you would subtract the total amount of profits that will be distributed from the total profits:

$100,000 - $60,000 = $40,000

This means that under the new profit sharing ratio, the business will retain $40,000.

Here is the calculation in a formula:

New Profit Sharing Ratio = (Desired Distribution / Total Profits)

Where:

For example:

New Profit Sharing Ratio = ($60,000 / $100,000) = 0.60

This means that the new profit sharing ratio is 60%.