The council-owned firm made a 16.3 million profit in 2005/06, mainly due to the multi-million pound sale of its Shrub Hill depot off Leith Walk to housing developers.
Lothian Buses said that the extra income, which does not include money from recent fare hikes, will be spent on more new buses - with the exception of a 2.2m annual dividend paid to the council.
Chief executive Neil Renilson - who also heads up a firm overseeing the integration of trams and buses - is understood to be the public transport operator's highest-paid director.
Mr Renilson now earns 218,000 - around 75,000 more than the chief executive of the council, Tom Aitchison.
Last summer Lothian Buses was involved in a bitter pay dispute with its drivers, who staged a series of walk-outs in a bid to receive an immediate 6.15 per cent wage rise, taking their hourly rate to 9.
They eventually settled on a two-year 12 per cent deal, less than they had been pushing for.
Lothian Buses' marketing director Iain Coupar today explained how the company's profits are spent on improving services for travellers.
"We are in the fortunate position that we are able to reinvest the majority of our profits in new buses for the benefit of Edinburgh's passengers," he said.
"Since 2000 Lothian Buses has spent 85m on new low-floor buses, with 75 more new ones due over the next six months giving Edinburgh one of the youngest bus fleets in the country.
"We also have some of the best value fares on offer to bus passengers."
Although Lothian Buses is essentially run as a private company, it is one of the few remaining publicly-owned bus operators in the country.
The city council owns 91 per cent of its shares, with neighbouring councils making up the other nine per cent.
This set-up allows the firm to keep fares low and also means that it can spend more on its services, as the shareholders only expect a divided of 2.2m. There is much greater shareholder pressure on rivals such as First.
Lothian Buses, which has 2000 employees, witnessed an upturn in the fortunes of its deficit-laden pension scheme last year, which had initially threatened to leave the council without its annual dividend.
Contributions to the scheme increased to 4.4m in 2005, up from 2.7m during the previous year.
Next year's profits are expected to rise again following the recent 25 per cent increase in bus tickets in Edinburgh to a 1 flat fare, although this was put down to rising fuel prices and the new pay deal for drivers.
Operating profits in 2005/06, excluding the gain made from the 12m sale of the Shrub Hill depot, climbed from 3.1m in 2004 to 3.9m, while income rose from 73.4m to 75.6m.
Total boardroom pay in the period climbed 11 per cent to 757,000.
Though Lothian Buses does not name Mr Renilson in its accounts, and refers only to its "highest-paid director", his salary has risen 50 per cent from 143,000 two years ago.
Mr Renilson's new salary means that he now earns more than any of the highest-earning leaders in the Scottish government, the civil service, the university sector and hospitals.
According to a recent survey, the nation's highest-earning executive in the public sector was Jon Hargreaves.
The chief executive of Scottish Water, Mr Hargreaves' basic salary of 215,000 has increased by 23 per cent in three years.
Today's news is expected to anger many of the bus drivers who were behind last summer's crippling strikes.