# Why is investment not a cost in firms profit functions?

In all textbooks I've seen profits is written as: $$\pi=py-wL-rK$$ It is evident here that w and r are operational costs.

But unless there is no depreciation and the level of capital is to remain fixed, there is a cost of investment! Why is this not taken into account for calculating profits? Is it some sort of assumption of "steady state" involved?

• Consider if the investment is in office space - how do you distribute that cost down to product profit if you can not directly link the two? In most accounting principles you separate P&L from your cash flow to better see performance. You would almost definitely have depreciation as part of the P&L, but the initial investment will only show in your cash flow statement (and of course the balance sheet as an asset). Many metrics exist that take investment into consideration, eg Return on Investment, ROI. – ssn Feb 27 '18 at 19:40