Profit is a term used in economics to describe the financial benefit realized when revenue generated from a business activity exceeds the expenses, costs, and taxes involved in sustaining the activity in question. Here are some key points about profit:
- Profit is the difference between revenue that an economic entity has received from its outputs and total costs of its inputs).
- It is equal to total revenue minus total cost, including both explicit and implicit costs).
- There are three main types of profit: gross profit, operating profit, and net profit.
- Gross profit is the money left after paying for the goods and services sold.
- Operating profit is whats left after also paying operating costs such as rent, electricity, phones, and in some cases staff.
- Net profit is what you made after deducting all costs and tax.
- Profitability refers to the extent to which a company earns a profit.
- Profitability is commonly expressed as a ratio, such as the gross profit margin, net profit margin, operating margin, or EBITDA.
- While profitability is a concept, profit is an absolute amount, which means it is the total amount of income or revenue earned above expenses.
In summary, profit is the financial benefit realized when revenue generated from a business activity exceeds the expenses, costs, and taxes involved in sustaining the activity in question. There are different types of profit, and profitability refers to the extent to which a company earns a profit.
