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<\/figure>\n\n\n\nGross profit<\/h3>\n\n\n\n
Your gross profit is your total sales minus your direct costs. These include the cost of raw materials and staff wages, for example. The gross profit shows you that you\u2019re selling goods and services at a higher price than they cost you to produce. <\/p>\n\n\n\n
You can work out your company\u2019s gross profit with the following calculation: <\/p>\n\n\n\n
- \n
- Revenue \u2013 direct costs = gross profit<\/li>\n<\/ul>\n\n\n\n
Operating profit<\/h3>\n\n\n\n
Your operating profit is the income from sales once operating expenses, such as rent, utility bills and equipment, have been deducted. It excludes things like tax and interest and can show you how efficient your business operations are.<\/p>\n\n\n\n
To work out your operating profit, carry out the following calculation:<\/p>\n\n\n\n
- \n
- Gross profit \u2013 operating expenses = operating profit<\/li>\n<\/ul>\n\n\n\n
Net profit<\/h3>\n\n\n\n
Your net profit shows that you\u2019re making money once all expenses and taxes have been paid. This number comes last on a profit and loss statement which is why it\u2019s known as the bottom line.<\/p>\n\n\n\n
You can use the following calculation to work out your net profit:<\/p>\n\n\n\n
- \n
- Operating profit \u2013 tax = net profit <\/li>\n<\/ul>\n\n\n\n
Example of profit calculation<\/h2>\n\n\n\n
Eddie runs a hair salon and wants to work out his profit. The figures below will help with his calculations:<\/p>\n\n\n\n
- \n
- Total revenue = \u20ac150,000<\/li>\n\n\n\n
- Direct costs (salon products and staff wages) = \u20ac50,000<\/li>\n\n\n\n
- Operating expenses (rent, utility bills, equipment) = \u20ac30,000<\/li>\n\n\n\n
- Taxes = \u20ac10,000<\/li>\n<\/ul>\n\n\n\n
To work out his gross profit, Eddie needs to subtract his direct costs of \u20ac50,000 from his total revenue of \u20ac150,000, giving him a gross profit of \u20ac100,000.<\/p>\n\n\n\n
To work out his operating profit, Eddie needs to subtract his operating expenses of \u20ac30,000 from his gross profit of \u20ac100,00, giving him an operating profit of \u20ac70,000.<\/p>\n\n\n\n
To work out his net profit, Eddie needs to deduct taxes of \u20ac10,000 from his operating profit of \u20ac70,000, giving him a net profit of \u20ac60,000.<\/p>\n\n\n\n
What is profit margin?<\/h2>\n\n\n\n
Your profit margin is represented as a percentage rather than a figure. It basically says the same thing as profit, but it can be useful to have a percentage if you want to compare your business performance to that of other companies. <\/p>\n\n\n\n
For example, if you want to work out your gross profit margin, you need to carry out the following calculation:<\/p>\n\n\n\n
- \n
- (Gross profit \/ sales revenue) x 100 = gross profit margin percentage<\/li>\n<\/ul>\n\n\n\n
To work out your net profit margin, it\u2019s:<\/p>\n\n\n\n
- \n
- (Net profit \/ sales revenue) x 100 = net profit margin percentage<\/li>\n<\/ul>\n\n\n\n
Using the above examples, Eddie\u2019s gross profit margin would be (\u20ac100,000 \/ \u20ac150,000) x 100 = 67%.<\/p>\n\n\n\n
Eddie\u2019s net profit margin would be (\u20ac60,000 \/ \u20ac150,000) x 100 = 40%.<\/p>\n\n\n\n
Calculating profit FAQs<\/h2>\n\n\n\n
\n\n\n\n \n What is profit? <\/a>\n <\/h5>\n <\/div>\n\n
\n\n<\/p>\n
Profit is one of the main indicators of business performance. It\u2019s simply the money you have left after paying for business expenses. The more profit you make, the better your business is performing.\u00a0<\/span><\/p>\n
<\/p>\n <\/div>\n <\/div>\n <\/div>\n
\n\n\n \n What does profit say about a business? <\/a>\n <\/h5>\n <\/div>\n\n
\n\n<\/p>\n
As a business, your primary goal will be to make money. As a result, you might measure your business\u2019 success by its profit. With lots of money going in and out of your business, it won\u2019t always be easy to know how much money you\u2019re making. But calculating your profit can help you to keep track of your business\u2019 financial health.\u00a0<\/span><\/p>\n
This can also help you to establish whether you need to make improvements in certain areas. After all, you might be generating a lot of sales, but that doesn\u2019t necessarily mean you\u2019re making a decent profit. If costs are high, your profit might not be as healthy as you\u2019d like, meaning you\u2019ll need to see where you can make cutbacks. <\/span><\/p>\n
<\/p>\n <\/div>\n <\/div>\n <\/div>\n
\n\n\n \n What is profitability? <\/a>\n <\/h5>\n <\/div>\n\n
\n\nThe terms profit and profitability are often used interchangeably, but they are not the same. Profit is a specific number, while profitability is a relative amount. Profitability is a metric used to determine the scope of a company\u2019s profit in relation to the size of the business. It can be used to measure how efficient the business is and ultimately, whether it will be a success or failure. Although a company can generate a profit, it doesn\u2019t necessarily mean that the company is profitable.\u00a0<\/span><\/p>\n <\/div>\n <\/div>\n <\/div>\n
- (Net profit \/ sales revenue) x 100 = net profit margin percentage<\/li>\n<\/ul>\n\n\n\n
- (Gross profit \/ sales revenue) x 100 = gross profit margin percentage<\/li>\n<\/ul>\n\n\n\n
- Operating profit \u2013 tax = net profit <\/li>\n<\/ul>\n\n\n\n
- Gross profit \u2013 operating expenses = operating profit<\/li>\n<\/ul>\n\n\n\n