Are profits hidden as salary or other business costs

Yes.

Let us compare two firms, A and B. Both firms report gross income (R) of $100. Both firms report operating expenses of $100. Both firms tender a commodity to the general public (for the sake of simplicity). Both firms declare tax status of the firm nonprofit.

Let gross income of A = Q x P = 10 x $10.
Let gross income of B = Q x P = 4 x $20.
Let C of Q for A, B = $2 (for the sake of simplicity).
Total cost A = $20; Total cost B = $8.

Clearly, C≠P yet firms A, B legitimately disclaim profit. The difference of C and P is extinguished in the difference of R - OpEx. To what operating expense(s) of the firm then do we attribute Profit A ($80) and Profit B ($72)?

There are hundreds of legitimate business expenses not directly related to production or purchase of Q which diminish the nonprofit firms' incomes, for example, amortization and depreciation of plant and equipment, interest payments, currency exchange losses, professional fees. In this case we compare the cost of salaries and wages alone. Typically, compensation is engrossed by line item General Administration of periodic financial statements.

Let A compensate three at $10 and one at $40, leaving $10 for other expenses.
Let B compensate ten at $5 and two at $10, leaving $2 for other expenses.

Were we to add compensation to cost of Q, 90% of A's income is attributable to C of Q, 98% of B's income is attributable to C of Q.

What "Management Amendement" provision of the various US bills seek by defining the loss ratio of a federally qualified health insurer as 85% of R is, is part, maximizing cost of Q, ex ante compensation and other unspecified business expenses. A charitable interpretation of such limitation supposes an insurer will then tender cost of Q = P. But we see that identity is fairly meaningless.

 

Diversity is the key to economic and political evolution.