The ultimate goal of any commercial firm is to generate income. Profit generally represents the excess of income over expenses. In other words, this is the part of the proceeds that remains after covering the costs and is used to increase fixed capital.
Instructions
Step 1
A firm's profit is a positive financial difference that remains at its disposal after covering production costs, paying off debt obligations and paying dividends to founders and shareholders. This is a surplus of income that goes in addition to the main capital and is invested in the further development of the company.
Step 2
In the reporting financial documentation, the estimated value of the company's profit means gross profit, which is equal to the difference between net income and the cost of finished goods:
VP = BH - SP.
Step 3
Gross income is equal to the amount of proceeds from the sale of products. Net income is calculated by subtracting from this amount the value of all goods returned by consumers, as well as discounts provided to buyers under special promotions or discount programs.
Step 4
The cost of finished goods includes the cost of purchasing and delivering equipment and raw materials, remuneration of employees of the company and other costs associated with the production and promotion of goods to the market.
Step 5
To assess the efficiency of a firm's entrepreneurial activity, an indicator of net profit is taken. This value is equal to the difference between gross profit and the amount of taxes and other mandatory payments to government agencies (fines, excise taxes, payment of certificates, permits, etc.). There are also concepts of accounting and economic profit.
Step 6
The accounting profit of a firm is the aggregate of income calculated from the balance sheet data. This indicator takes into account only those financial transactions for which official accounting entries were made between the corresponding accounts. This type of profit does not take into account the amount of lost profit (the opportunity cost of a product or service).
Step 7
Economic profit is obtained from accounting profit by subtracting the amount of additional costs, for example, payment of bonuses to employees, alternative cost. The indicator of economic profit can serve to assess the efficiency of the use of the firm's tangible assets, provides a more detailed picture of the relationship between the actually spent funds and the financial result obtained.
