What is the Difference Between Profit Center and Investment Center?

The main difference between a profit center and an investment center lies in their responsibilities and the decisions they make. Here are the key differences:

• Profit Center: A profit center is a division or branch of a company that is considered a standalone entity, responsible for generating its own income and managing its costs and revenues. Managers in a profit center are involved in all decisions relating to revenues and costs, but they do not make decisions about capital investments. Examples of profit centers include individual retail stores and fast food restaurants.
• Investment Center: An investment center is a segment of an organization responsible for costs, revenues, and investments in assets. In addition to managing revenues and costs, investment center managers have control over asset investment decisions. Investment centers are typically subsidiary companies or divisions because costs, revenues, and assets have to be identified separately. They are responsible for their own revenues, expenses, and assets, and manage their financial statements.

In summary, while both profit centers and investment centers are responsible for managing revenues and costs, only investment centers have the additional responsibility of making investment decisions and managing assets.

Comparative Table: Profit Center vs Investment Center

Here is a table comparing the differences between Profit Centers and Investment Centers:

In summary, a Profit Center is a business unit responsible for generating revenue and profits, focusing on the management of revenues and costs, and is evaluated based on its profitability. On the other hand, an Investment Center is a business unit responsible for generating revenue and profits, managing investments in assets, and making investment decisions. It has more autonomy and is evaluated based on investment-related metrics like ROI and EVA.