Have you ever wondered how a person earns money, how he gains from his business?
Here comes the concept of profit. The profit of any object or a particular product is calculated using the profit formula: profit = Selling price – Cost Price or by subtracting the cost price from the selling price of the product.
In this article, we are going to understand the concept of profit as well as the significance of profit and a few examples to understand the topic in a good manner.
Profit Formula
In mathematics, we use a formula to calculate the profit which helps to understand the amount of profit that has been made by the person who is selling the product. The profit formula is generally used for business as well as for financial deals. Now, let’s know how a person profits.
Let’s suppose you have a business and you buy a purse for 110 rupees. Now in case you want to have a profit, the selling price which is denoted as S.P must be higher than the price at which you bought the purse which is known as the cost price and is denoted as C.P. You decide to sell the purse for 180 rupees. Let’s see how much profit or loss you had.
Selling price is known as the price at which any particular product is being sold whereas the Cost price is known as the price at which any shopkeeper buys a product.
First, let’s note down the information we have,
Selling price (S.P) = 180 rupees
Cost price (C.P) = 110 rupees
Since the S.P > C.P that means you had a profit. The formula to calculate the profit = Selling price – Cost Price.
Substituting the values, we get 180 – 110 = 70 rupees. Therefore, you had a profit of 70 rupees on selling the purse.
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Profit in Simple Terms
Profit is a measure of a company’s success, & executives should be able to quantify it. Profit is used by analysts as a measure of a company’s worth, assisting investors in making sound judgments. Individuals may be expected to utilize basic mathematics to calculate profit or gain on their own in some situations. In this article, we will define profit and what it means for a business, as well as showcase a few examples which will help you understand the concept of profit.
What Does a Company’s Earnings or Profit Indicate About It?
A company’s ultimate objective is to make a profit or gain (money in layman terms). As a result, many businesses gauge their success based on their profitability. Some analysts as well as some executives are exclusively concerned with the top line, whilst many others are concerned with monitoring and improving the bottom line. There are three types of profits – Operating profit, Net profit, Gross profit each of these three sorts of profit provides those folks with a distinct sense of accomplishment. They will utilize profitability as a comparison criterion in making their final judgment when examining acquisition opportunities.
