What Is Profit?

For businesses, profit is the positive financial gain remaining after all costs, taxes, and expenses have been deducted from total sales. A business owner will either apportion profits or reinvest them back into their company.

Profit is one of the most important measurements in determining the health and success of a business.

Profit may also be referred to as the bottom line.

Different Types of Profit

All three main types of profit can be found on a company’s income statement:

Profit Formula

To calculate profit, use the following formula:

profit formula
Example of Profit

Here is some information about Company XYZ for last year:
example of profit

Using the profit formula and the information above, we can calculate that Company XYZ's profit was:

$2,000,000 - $1,000,000 - $50,000 - $95,000 = $855,000

Drawbacks of Calculating Profit

Because profit varies considerably between companies of different sizes (and between industries), it is often appropriate to consider profit as a percentage of sales (profit margin) when making comparisons.

Is It Better to Have a High or Low Profit?

Changes in profit are the subject of much analysis. Generally speaking, high and/or rising profits are indicative of a successful business while low and/or declining profits could suggest a myriad of problems (e.g. expense management issues)

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Paul Tracy
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 3 million monthly readers.

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