Profit

Ciaran Burke

Page written by AI. Reviewed by Ciaran Burke on February 14, 2024.

Definition

Profit, in a business context, is the financial gain or positive difference between total revenue and total expenses over a specific period of time.

What is profit?

Profit is a fundamental measure of a business’s financial performance and is a key indicator of its viability and success.

Formula for calculating profit:

Profit = total revenue – total expenses

Types of profit:

  1. Gross profit: This is the profit calculated before accounting for operating expenses. It reflects the profitability of the core business operations.
  2. Operating profit (operating income): This is the profit derived after accounting for operating expenses. It provides an indication of the profitability of the company’s core operations.
  3. Net profit (net income): This is the final profit figure after all expenses, including taxes and interest, have been subtracted from total revenue. It represents the overall profitability of the business.

Profitability is a primary measure of a business’s success. It indicates whether a company is generating sufficient income to cover costs and generate a return on investment. Profit allows a business to provide returns to its shareholders through dividends, reinvestment, or share buybacks and will attract investors and lenders 

Example of profit

A bakery sells cupcakes for £3 each. The cost to make each cupcake, including ingredients and labor, is £1. After selling 100 cupcakes, the bakery’s total revenue is £300 (£3 x 100) and the total cost to make the cupcakes is £100 (£1 x 100).

Therefore, the bakery’s profit is £200.

Ready to grow your business?

Clever finance tips and the latest news

delivered to your inbox, every week

Join the 70,000+ businesses just like yours getting the Swoop newsletter.

Free. No spam. Opt out whenever you like.

We work with world class partners to help us support businesses with finance

close
Looks like you're in . Go to our site to find relevant products for your country. Go to Swoop No, stay on this page