Profit is the excess of income over production costs from the sale of any goods and services. This is one of the more important indicators of financial results in the economic activities of companies. It is calculated in the form of the difference between the proceeds from the sale of the product and the sum of the costs of certain factors of production in monetary terms.
Instructions
Step 1
Profit can be divided into general (gross), net, accounting and economic. Gross (total, balance sheet) profit is the difference between the sale and the cost of goods or services sold. For retailers, total profit is the revenue minus the value of all products sold.
Step 2
Net profit is a part of the company's balance sheet profit that remains at its disposal after taxes, deductions, fees and other necessary payments to the budget. This profit is used to increase the company's working capital, the formation of reserves, funds and reinvestment in production.
Based on the volume of net profit, dividends are accrued to the shareholders of the enterprise. Moreover, its volume depends directly on the gross profit, as well as the amount of taxes.
Step 3
Accounting profit is defined as the difference between the proceeds from the sale (the amount of sales) and the expenses (costs) of the firm.
Step 4
Economic profit is the part of the net profit that remains with the organization after deducting all costs incurred, including the opportunity cost of allocating capital to the owner. At the same time, in the case of a negative value of the value of economic profit, there is a variant of the company leaving the market. It can be defined as the difference between the profitability of the value of the invested capital and its weighted average cost, multiplied by its value.
This type of profit allows you to compare the return on invested capital of the company with the minimum required return to meet the expectations of investors, as well as to express the result of the difference in monetary units.
Step 5
Economic profit differs from an indicator expressing accounting profit only in that when determining it, the value of all long-term and other interest-bearing liabilities is taken into account. That is, accounting profit is greater than economic profit by the amount of opportunity costs or costs of rejected opportunities.
