Question
What is profit
Answers
GPT-5 mini
Profit is the financial gain a business makes after covering its costs. In its simplest form:
Profit = Revenue (sales) − Costs (expenses)
Key types of profit:
- Gross profit: Revenue − Cost of goods sold (direct costs of producing goods). Shows how efficiently a company makes its product.
- Operating profit (or EBIT): Gross profit − Operating expenses (sales, general & administrative, depreciation). Shows profit from core operations.
- Net profit (or net income): Operating profit − Interest − Taxes ± Non‑operating items. The “bottom line” available to owners or retained in the business.
- EBITDA: Earnings before interest, taxes, depreciation and amortization — used to compare operating performance across firms.
- Economic profit: Accounting profit minus opportunity costs. It shows whether a business earns more than the next-best alternative.
- Normal profit: The minimum accounting profit needed to keep resources in their current use (part of opportunity costs).
Simple example:
If revenue = $100,000, cost of goods = $40,000, operating expenses = $30,000, interest & taxes = $10,000:
- Gross profit = $60,000
- Operating profit = $30,000
- Net profit = $20,000
Why profit matters:
- Indicates business sustainability and success
- Funds investment, debt repayment, dividends, and reserves
- Used by investors and lenders to assess performance
Ways to improve profit:
- Increase revenue (higher prices, more sales, better marketing)
- Reduce costs (cheaper inputs, efficiency, automation)
- Improve product mix or margins (focus on higher-margin items)
- Control overhead and reduce waste
If you want, I can show how profit margin is calculated, give examples for a specific business, or explain accounting entries for profit.
Profit = Revenue (sales) − Costs (expenses)
Key types of profit:
- Gross profit: Revenue − Cost of goods sold (direct costs of producing goods). Shows how efficiently a company makes its product.
- Operating profit (or EBIT): Gross profit − Operating expenses (sales, general & administrative, depreciation). Shows profit from core operations.
- Net profit (or net income): Operating profit − Interest − Taxes ± Non‑operating items. The “bottom line” available to owners or retained in the business.
- EBITDA: Earnings before interest, taxes, depreciation and amortization — used to compare operating performance across firms.
- Economic profit: Accounting profit minus opportunity costs. It shows whether a business earns more than the next-best alternative.
- Normal profit: The minimum accounting profit needed to keep resources in their current use (part of opportunity costs).
Simple example:
If revenue = $100,000, cost of goods = $40,000, operating expenses = $30,000, interest & taxes = $10,000:
- Gross profit = $60,000
- Operating profit = $30,000
- Net profit = $20,000
Why profit matters:
- Indicates business sustainability and success
- Funds investment, debt repayment, dividends, and reserves
- Used by investors and lenders to assess performance
Ways to improve profit:
- Increase revenue (higher prices, more sales, better marketing)
- Reduce costs (cheaper inputs, efficiency, automation)
- Improve product mix or margins (focus on higher-margin items)
- Control overhead and reduce waste
If you want, I can show how profit margin is calculated, give examples for a specific business, or explain accounting entries for profit.