What is Profit?
Profit is a financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something.
Profit tells us the financial benefit realized when the revenue generated from the business activities exceeds the expenses, costs, and taxes involved in sustaining the activity in question. Any profits earned funnel back to business owners, who choose to either pocket the cash or reinvest it back into the business. Profit is calculated as total revenue less total expenses.
How to calculate Profit?
The profit margin formula is simple and helps you keep your finances on track.
There are three steps to calculating profit margin:
- Determine the net income (subtract the total expenses from the revenue).
- Divide the net income by the revenue.
- Multiply the result by 100 to arrive at a percentage.
What Does Profit Tell You?