What Is Standalone Profit?
Standalone profit is the profit associated with the operation of a single segment or division within a firm. This contrasts with consolidated profit, which measures the profit of a firm as a whole. Measuring the standalone profit of each separate segment or division of a firm then adding them all up is a possible way to measure the overall profit of the entire firm.
When measuring standalone profit, values are only included if they are directly generated from the activities of the segment or division of the firm.
- Standalone profit measures the profitability of a particular business unit within a firm on its own.
- By measuring standalone profit, a company or an analyst can see which business segments are generating the most profit for a company and which are not.
- A company's total profit will essentially add together all the standalone profits of each unit.
Understanding Standalone Profit
A business segment is a component of a company that generates its own revenues and creates its own products, product lines, or service offerings. Segments typically have discrete associated costs and operations.
Standalone profits offer a method of valuing the components or segments of a business. It can be good to measure the standalone profit of each business segment to get an idea of which business segments are profitable. Standalone profit looks at the self-contained earning power of an entity by incorporating revenues and costs directly associated with the unit. This method determines the profit of a company as if it were made up of a series of completely independent operations.
Standalone profit analysis is important because it helps management, as well as investors and analysts, understand which divisions or product lines of the business are performing well and which are not. By understanding the various segment margins, management can allocate resources properly and if necessary, eliminate unprofitable product lines.
Standalone profits can thus be applied to:
- Business units
- Sales territories
- Geographic regions
- Specific store locations
- Divisions or departments
Adding up all of the standalone profit generated by each business segment allows for the calculation of the total profit for the entire firm. Segments and divisions of firms can also generate standalone financial statements, which show the balance sheet, income statement, and statement of cash flows just for a particular area of the firm. This differs from the firm's consolidated financial statements, which look at the firm as a whole.
For example, an athletic shoe company might report its profits for the company as a whole. To provide greater detail, it could also report standalone profits—the net incomes for different components of the business–such as women's shoes, men's shoes, children's shoes, and athletic accessories & apparel. If the company has multiple locations, it could also report the segment (geographic) profits for its Northwest stores, Midwest stores, and Northeast stores.