What Is Profit?
Profit is the amount of money an individual or a company makes after paying all of its expenses.
Profit is the money that remains after the cost of producing goods and services has been paid. These costs include wages, raw materials, interest on debt, taxes, and more.
Any profit a business generates goes to its owners, who may distribute it to shareholders (if any) or reinvest it back into the business.
Profit is calculated by deducting expenses from revenue. When a company’s costs are lower than their revenue, it is in profit. When its costs are higher than its revenue, it is called a loss.
There are three main types of profit based on how they calculate them. They are:
- Gross: This subtracts the direct cost of producing goods from the total revenue. It can determine how efficient a company is at using its labor and supplies to create goods and services.
- Operating: This concerns itself with income derived from a company’s primary or core business operations.
- Net: This deals with the amount of money a business has left after deducting all operating costs, interest, and taxes.
You can determine whether a business made profits and how much it made over a given period by looking at its income statement, otherwise known as the “Profit and Loss statement.”
An income statement is a financial report summarizing the revenue a company generated and expenses incurred during a specified period, usually a quarter or fiscal year.
The annual income statement for Sky Technologies for the year 2020 records a total revenue of $700,000 and a total expense of $160,900. To calculate, you will subtract $160,900 from $700,000. The remaining amount is $539,100, which means they are in profit.« Back to Glossary Index