Corporate Profit

Written by:
Image
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades.

Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers. While there, Paul authored and edited thousands of financial research briefs, was published on Nasdaq. com, Yahoo Finance, and dozens of other prominent media outlets, and appeared as a guest expert at prominent radio shows and i...

View all posts
Updated August 12, 2020

What is Corporate Profit?

Corporate 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 = Corporate Profit

Note that preferred stock dividends are typically included in the traditional net income calculation, but common stock dividends are not.

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 economics, 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 profit is not a measure of how much cash a company earned during a given period. The income statement, and hence net income, typically includes noncash expenses, such as depreciation. It is also important to understand that changes in accounting methods can greatly influence profit, and these changes may have little to do with a company's actual operations.

Changes in corporate profit are the subject of much analysis. In general, low profit could suggest myriad  problems, ranging from inadequacies in customer or expense management to unfavorable accounting methods; however, some companies strive to minimize taxes and will therefore intentionally minimize net income.

Corporate profit varies greatly from company to company and from industry to industry. Because profit is measured in dollars and companies vary in size, it is often more appropriate to consider profit as a percentage of sales (profit margin) when comparing one company to another. Care should also be taken when comparing profit 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.

Ask an Expert about Corporate Profit
At InvestingAnswers, all of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Corporate Profit.
Be the first to ask a question

If you have a question about Corporate Profit, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

If you have a question about Corporate Profit, then please ask Paul.

Ask a question Read more from Paul

Read this next

Paul Tracy - profile
Ask an Expert about Corporate Profit

By submitting this form you agree with our Privacy Policy

Share
close
Don't Know a Financial Term?
Search our library of 4,000+ terms