What is Profit?

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Different profit, Smarter profit. The works of our authors have appeared in the magazines of the whole world.

DEFINITION:

Profit is a measure of how well (or poorly) a company makes money – it is total revenue minus total expenses.

Understanding profit

You can learn about a company’s financial health by reading its periodic earnings reports. One of the most important reports is the income statement, which calculates profit, i.e., the bottom-line comparison of revenues and expenses. Generally, “revenue” (how much money a business makes) – “expenses” (the costs associated with selling goods or services, compensating employees, renting office space, etc.) = profit. Note, however, that there are a handful of types of profit (gross profit, pre-tax profit, net profit, etc.), each reflecting a different level of completeness in the calculation.

Revenue – Total Expenses = Profit

Example

Let’s determine the profit of our hive. We take the total income of the hive (the value of all the honey sold) minus the costs (paying the worker bees and the cost of housing the hive) and leave the amount that the hive gained or lost during that period. Here’s a rough sketch of how to calculate the different types of profit on an income statement (see below for a real-world example based on Walmart’s first quarter 2019 results):

Takeaway

The profit is like the honey from the hive of a company…

It indicates how much a company earns or loses based on the difference between what it takes in (revenue) and what it spends (cost). There are different types of profit calculations, and some are more thorough than others. But they all help you measure how well a company is making money.

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