What is Corporate Profit?
Corporate profit, also called net income, is the amount remaining after all costs, depreciation, interest, , and other expenses have been deducted from total sales. is also referred to as the , or . The formula for is:
How Does Corporate Profit 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 corporate 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 corporate profit last year.
Why Does Corporate Profit Matter?
Philosophically speaking, corporate profit is what motivates industry, entrepreneurship and innovation. Adam Smith, the founder of modern , said, "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.”
Corporate profit is one of the most analyzed numbers a company can produce, and it plays a part in many other financial measures. It is important to understand that income statement, and hence , typically includes noncash expenses, such as . It is also important to understand that changes in methods can greatly influence , and these changes may have little to do with a company's actual operations.is not a measure of how much a company earned during a given period. The
Corporate sales ( ) when comparing one company to another. Care should also be taken when comparing over time, as many companies and industries are cyclical and/or seasonal. This is why comparisons are generally most meaningful among companies within the same industry, and the definition of a "high" or "low" net income should be made within this context.varies greatly from company to company and from industry to industry. Because is measured in dollars and companies vary in size, it is often more appropriate to consider as a percentage of