Windfall Profits

AAA

DEFINITION of 'Windfall Profits'

Huge profits that occur unexpectedly due to fortuitous circumstances. Such profits are generally well above historical norms and may occur due to several factors - such as a price spike or supply shortage - that are either temporary in nature or may be longer lasting. Windfall profits are generally reaped by an entire industry sector, but can also be reaped by an individual company.

INVESTOPEDIA EXPLAINS 'Windfall Profits'

In recent years, surging prices for crude oil have led to record profits for many energy companies, leading to demands from politicians to deem them as windfall profits and tax them accordingly. Needless to say, most companies that have made windfall profits strongly resist attempts to pay additional taxes on them. Arguments made by such companies are that record profits lead to record taxes payable by them in any case, as well as the fact that windfall profits are likely to be only temporary in nature.

RELATED TERMS
  1. Economic Equilibrium

    A condition or state in which economic forces are balanced. These ...
  2. Law Of Supply And Demand

    A theory explaining the interaction between the supply of a resource ...
  3. Nonrecurring Gain Or Loss

    A one-time or highly infrequent profit or loss. One-time gains ...
  4. Windfall Tax

    A tax levied by governments against certain industries when economic ...
  5. Private Finance Initiative - PFI

    A method of providing funds for major capital investments where ...
  6. Fintech

    Fintech is a portmanteau of financial technology that describes ...
RELATED FAQS
  1. What is the average annual dividend yield of companies in the insurance sector?

    Value investors commonly purchase electronics stocks because they can become quite cheap during recessions with a wide differential ... Read Full Answer >>
  2. What happens when a company defaults on its commercial paper obligations?

    As a practical matter, the Issuing and Paying Agent, or IPA, is responsible for reporting the commercial paper issuer's default ... Read Full Answer >>
  3. How can I calculate compounding interest on a loan in Excel?

    Compound interest is the amount of interest on a principal amount, along with the accumulated interest on the principal from ... Read Full Answer >>
  4. How does a company decide which key performance indicators (KPIs) to use?

    A company's key performance indicators (KPIs) should be considered specific success metrics for that individual company. ... Read Full Answer >>
  5. What is an available seat mile in the airline industry?

    One airline seat available for sale and flown one mile equals one available seat mile (ASM) in the airline industry. A primary ... Read Full Answer >>
  6. Under what circumstances is short selling advisable?

    The practice of selling a stock short only makes sense when the investor anticipates the share price will subsequently drop. ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Why Companies Stay Private

    Many private companies prefer to stay private and find alternate sources of capital. Find out what firms have to gain by eschewing the windfall from a flashy IPO.
  2. Taxes

    Winning The Jackpot: Dream Or Financial Nightmare?

    Don't assume all prizes are free. Many come with enough costs to render them worthless.
  3. Active Trading

    Why You Can't Influence Gas Prices

    Don't believe the water-cooler talk. Big oil companies aren't to blame for high prices.
  4. Investing Basics

    Understanding Financial Instruments

    Financial instrument is a general term used to describe a monetary asset.
  5. Investing Basics

    What is the Rule of 70?

    The rule of 70 is an easy way to calculate how many years it will take for an investment to double in size.
  6. Investing Basics

    What is Terminal Value?

    The terminal value of an asset is its anticipated value on a certain date in the future.
  7. Options & Futures

    Taking Measure: Gold, Diamonds and... Karats?

    We look at the difference between karats and carats, as well as investment opportunities in gold and diamonds.
  8. Economics

    What is Systematic Sampling?

    Systematic sampling is similar to random sampling, but it uses a pattern for the selection of the sample.
  9. Fundamental Analysis

    Explaining Expected Return

    The expected return is a tool used to determine whether or not an investment has a positive or negative average net outcome.
  10. Economics

    Explaining PFIs and PPPs

    Public-private partnerships (PPP) and Private Finance Initiative (PFI) are two business relationships between government agencies and private businesses.

You May Also Like

Hot Definitions
  1. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  2. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  5. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  6. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
Trading Center