What is Black?
Black is slang for profit. Profit, also called net income, is the amount remaining after all costs, depreciation, interest, taxes, and other expenses have been deducted from total sales. Profit is also referred to as the bottom line, net profit, or net earnings. The formula for profit is:
Total Sales - Total Expenses = Profit
Note that preferred stock dividends are typically included in the traditional net income calculation, but common stock dividends are not.
How Does Black Work?
Here is some information about Company XYZ for last year:
Using the formula and the information above, we can calculate that Company XYZ's profit was:
$1,000,000 - $500,000 - $300,000 - $100,000 - $5,000 + $1,000 - $10,000 - $10,000 = $76,000
This means that Company XYZ made $76,000 of profit last year. It was “in the black.”
Why Does Black Matter?
Philosophically speaking, being in the black is what motivates industry, entrepreneurship, and innovation. It is the very thing that enables people to feed themselves, clothe their families, create jobs, and set money aside for the future. It is not a vice, but rather an incentive to dream, take risks, and try harder. As Adam Smith, the founder of modern economics, put it, 'It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest.”
In the retail industry, companies often don’t become profitable until the fourth quarter, when Christmas shopping begins. This is the source of the term “Black Friday.”