Profit
The term ‘profit’ describes a financial benefit that results from the revenues exceeding the expenses, costs and taxes involved in sustaining the business activity.
A profit is the amount of sales generated revenue a company is left with after it has covered all costs associated with producing the particular good or service. In other words, it’s the money after accounting for all expenses.
What to do with profits?
If a company generates profits, it generally has three options of how to use the money:
- Reinvest the money in the company to improve its product or work efficiency
- Pay out the money to its shareholders in the form of dividends
- Take out the cash and put it in the pocket
Types of profit
In accounting, they differentiate between several types of profit:
- Gross profit = Revenues – Cost of Goods Sold (COGS)
- Operating profit = Revenues – Cost of Goods Sold (COGS) – Operating Expenses – Depreciation & Amortisation
- Net Profit = Earnings Before Interest and Taxes (EBIT) – Interest Expense – Taxes
