Profit

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:

• Net profit
• Gross profit
• Operating profit

Profit Formula

To calculate profit, use the following formula:

Example of Profit

Here is some information about Company XYZ for last year:

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)