3. _Another meaning of profits is the annual net gain of the business, as compared with the average investment of capital._ This is a long step toward greater definiteness. If at the end of a year it were found that after paying all outside expenses there were $10,000 to set aside, this would be accounted a profit of ten per cent. on $100,000 invested. But confusion still reigns because of wide variation in the methods of estimating costs before fixing net profits. In one case the enterpriser rents lands and buildings, in another he owns them; in one case he has borrowed money and counts interest as a cost, in another he is free from debt; in one case he counts as a part of cost an estimated fair salary for himself and his partners, in another (usually in a small business) no such allowance is made Such a variation in business usage is most perplexing. In all these cases one must have the exact conditions in mind before it is possible to make any comparisons and draw any conclusions as to the relative profits of different industries. [Sidenote: Profits in economic theory] 4. _In the narrower and exacter sense profits are the net gain of the enterpriser after counting the rent of material agents and contract wages of employees at the prevailing rates._ Into the practical problem of cost and profit many factors enter, and the theoretical problem is to determine just how much ought to be attributed to each. In a large business usually the practical bookkeeping problem is not unlike that of economic analysis. A stock company counts as cost, as a part of fixed charges, interest on capital borrowed either from banks or bondholders. Its managers are paid salaries, counted as a part of cost. The net balance, after deducting these and all other expenses, is counted profits and paid in dividends to stockholders. The economic student is not attempting to get a theory of profits that is in contrast with practice. Rather, he is trying to analyze profits generally, just as they are analyzed in the few cases where the books are properly kept. In economic theory, therefore, profits are the part of the gain of any business that is logically attributable to fortunate investment and good management; profits are the income attributable to the enterpriser's services. [Sidenote: Profits a species of wages]