The amount earned by a business after deducting all expenses from its revenue.

Profit is indeed the amount earned by a business after deducting all expenses from its revenue [1, 2]. It’s a key financial metric that indicates a company’s financial health and its ability to generate returns for its owners or investors.

Here’s a breakdown of the concept of profit to provide some additional context:

  • Revenue: The total amount of income a business generates from selling its products or services.
  • Expenses: All the costs incurred by a business to operate, including production costs, marketing costs, salaries, rent, utilities, and other overhead costs.
  • Profit: Revenue minus expenses. If the result is positive, it indicates a profit. If the result is negative, it indicates a loss.

There are different types of profit that businesses track and analyze, such as:

  • Gross Profit: Profit remaining after deducting the cost of goods sold (COGS) from revenue. COGS represents the direct costs associated with producing the goods or services sold.
  • Operating Profit: Profit remaining after deducting all operating expenses, including both direct and indirect costs, from gross profit. Operating expenses encompass all costs related to running the business except for financing costs and taxes.
  • Net Profit (or Net Income): The final profit figure after deducting all expenses, including operating expenses, interest expenses, and taxes, from revenue. This represents the company’s bottom line profit.

The importance of profit for businesses includes:

  • Sustainability: Profit enables businesses to reinvest in their operations, develop new products, and stay competitive in the market.
  • Growth: Profits can be used to fund expansion, hire new employees, and explore new market opportunities.
  • Investor Confidence: Investors are more likely to invest in companies that demonstrate consistent profitability.
  • Stock Price: Profitability often translates to a higher stock price, which benefits shareholders.