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Profit generally is the making of gain in business activity for the benefit of the owners of the business. The word comes from Latin meaning "to make progress," is defined in two different ways, one for economics and one for accounting.
Profit may refer to:
- Profit (accounting)
- Profit (economics),
Profit may also refer to:
- Profit (real estate), a nonpossessory interest in land
- Profit (TV series), a short-lived American television series
- The Profit, a feature film by Peter N. Alexander
- Account of profits; in law, a type of equitable remedy.
Profit is the surname of the following people:
- Joe Profit (born 1949), former American football player
- Laron Profit (born 1977), professional basketball player
- Richard Profit (born 1974), English mountaineer and adventurer.
PROFIT (ACCOUNTING)
Accounting profit is the difference between price and the costs of bringing to market whatever it is that is accounted as an enterprise (whether by harvest, extraction, manufacture, or purchase) in terms of the component costs of delivered goods and/or services and any operating or other expenses.
A key difficulty in measuring profit is in defining costs. Pure economic monetary profits can be zero or negative even in competitive equilibrium when accounted monetized costs exceed monetized price.
DEFINITION
In the accounting sense of the term, net profit (before tax) is the sales of the firm less costs such as wages, rent, fuel, raw materials, interest on loans and depreciation. Costs such as depreciation, amortization, and overhead are ambiguous. Revenue may also be ambiguous when different products are sold as a package, or "bundled." Within US business, the preferred term for profit tends to be the more ambiguous income.
Gross profit is profit before Selling, General and Administrative costs (SG&A), like depreciation and interest; it is the Sales less direct Cost of Goods (or services) Sold (COGS).
Net profit after tax is after the deduction of either corporate tax (for a company) or income tax (for an individual).
Operating profit is a measure of a company's earning power from ongoing operations, equal to earnings before the deduction of interest payments and income taxes.
To accountants, economic profit, or EP, is a single-period metric to determine the value created by a company in one period - usually a year. It is the net profit after tax less the equity charge, a risk-weighted cost of capital. This is almost identical to the economist's definition of economic profit.
There are commentators who see benefit in making adjustments to economic profit such as eliminating the effect of amortized goodwill or capitalizing expenditure on brand advertising to show its value over multiple accounting periods. The underlying concept was first introduced by Schmalenbach, but the commercial application of the concept of adjusted economic profit was by Stern Stewart & Co. which has trade-marked their adjusted economic profit as EVA or Economic Value Added.
Some economists define further types of profit:
- Abnormal profit (or supernormal profit);
- Subnormal profit;
- Monopoly profit (super profit).
Optimum Profit - This is the "right amount" of profit a business can achieve. In business, this figure takes account of marketing strategy, market position, and other methods of increasing returns above the competitive rate.
Accounting profits should include economic profits, which are also called economic rents. For instance, a monopoly can have very high economic profits, and those profits might include a rent on some natural resource that firm owns, where that resource cannot be easily duplicated by other firms. |
