An online profit calculator displays the profit for a given cost price and selling price. STUDYQUERIES’s online profit calculator tool makes the calculation quicker, and it displays the profit in a fraction of a second.
How to Use the Profit Calculator?
To use the profit calculator, follow these steps:
- Step 1: Enter the cost price and the selling price in the appropriate fields
- Step 2: Click the “Solve” button to get the profit
- Step 3: The profit for the given amount will be displayed in the output field
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What is Profit And Loss Definition In Maths?
Mathematically, profit is defined as the gain from any business activity. Shopkeepers sell products with the aim of gaining some benefit from the buyer, i.e., profit. When he sells the product for a higher price than its cost price, he makes a profit, but if he sells it for a lower price than its cost price, he suffers a loss.
Profit and loss are essentially defined in terms of business. Financial gain accrues to the business owner. We will learn in this article how to calculate the profit amount and percentage with the help of formulas.
Profit And Loss Definition
Profit is generally defined as the amount gained from selling a product, which should exceed its cost price. It is the amount gained from any kind of business activity. If the selling price (SP) of a product is higher than the cost price (CP) of that product, then it is considered a gain or profit. A business activity that generates more revenue than taxes, expenses, and so on, which are involved in supporting the activity, generates a profit.
Profit and loss are the terms used to identify whether a transaction has been profitable or not. To understand the profit and loss formula, we must first understand what a ‘selling price’ and a ‘cost price’ are. A cost price is a price at which a product is purchased. A selling price is a price at which a product is sold. The profit is the difference between the selling price and the cost price if the selling price is greater than the cost price. The difference between the selling price and the cost price is called a loss.
Profit And Loss Formula
Profit can be explained in terms of cost price and selling price. The cost price of a product is the price of the product itself, while the selling price is the price at which the product is sold. So, if the selling price of the commodity is more than the cost price, then the business has gained its profit. Therefore, the formula to calculate profit is;
$$\mathbf{\color{red}{\Large{Profit\ or\ Gain = Selling\ Price\ – Cost\ Price}}}$$
In contrast, when the product is sold at a lower price than its cost price, it is considered a loss. Hence,
$$\mathbf{\color{red}{\Large{Loss\ = Cost\ Price\ – Selling\ Price}}}$$
Profit And Loss Percentage Formula
Using the formula given here, we can also determine the percentage profit gained in any business;
$$\mathbf{\color{red}{\Large{\%\ Profit = \frac{Profit}{Cost\ Price}\times 100}}}$$
The formula given here can also be used to calculate the percentage loss we have gained in any business.
$$\mathbf{\color{red}{\Large{\%\ Loss = \frac{Loss}{Cost\ Price}\times 100}}}$$
Types of Profit
There are three types of profit used in business. They are:
- Gross Profit
- Operating Profit
- Net Profit
Gross Profit
A company’s gross profit is the amount after costs associated with making and selling the product are removed from the selling price. The revenue from the sale of the product should be reduced by the amount or cost associated with making the product or providing services to the customer to obtain the gross percentage of profit.
The formula to calculate the Gross Profit is:
$$\mathbf{\color{red}{\Large{Gross\ Profit = Total\ Sales\ – COGs}}}$$
Where \(COGs\) represent the cost of goods sold.
Operating Profit
The operating profit of a company shows the contribution of its operations to its profitability. Operating income is basically the ratio of sales revenue to operating income.
The formula to calculate the Operating Profit is:
$$\mathbf{\color{red}{\Large{Operating\ profit = Gross\ Profit\ – Operating\ Expenses}}}$$
Also, $$\mathbf{\color{red}{\Large{Operating\ Profit\ Margin = \frac{Operating\ Profit}{Total\ Sales}}}}$$
Net Profit
The net profit includes all the revenue generated by the business. It represents the actual profit generated by the business.
The formula to calculate the Net Profit is:
$$\mathbf{\color{red}{\Large{Net\ Profit = Operating\ Profit – (Taxes\ and\ Interest)}}}$$
Profit margins allow companies to examine all three types of profit. In this case, the profit is divided by the return, whether gross, operating or net. This indicates how efficiently the business uses its earnings. When the ratio is large, the business makes a lot of profit per dollar of revenue. When the ratio is low, the business’s costs are covered by its profits. There are different ratios for different trades.
How to Calculate Profit And Loss?
Follow these steps to calculate the profit gained by any business:
- Calculate the cost price of the products.
- Calculate the total selling price of the products sold.
- You can calculate the profit by subtracting the cost price and selling price.
- The profit margin is calculated by dividing the profit amount by the cost price.
- To convert the profit margin to a percentage, multiply it by 100.
\(\mathbf{\color{red}{If\ a\ shopkeeper\ sells\ Apple\ at\ Rs.200\ per\ kg, whose\ cost\ price\ is\ Rs.150/- per\ kg\\Then\ find\ the\ profit\ gained\ by\ the\ shopkeeper.}}\)
Given \(Cost\ Price = Rs.150/-\)
And \(Selling\ Price = Rs.200/-\)
From the formula of profit, we know,
\(Profit = Selling\ Price\ – Cost\ Price\)
\(Profit = 200 – 150\)
\(Profit = 50\)
Therefore, the shopkeeper gains \(Rs.50/-\) from the business.
\(\mathbf{\color{red}{Find\ the\ gain\ percentage\ for\ the\ above\ example.}}\)
By the profit percentage formula, we know,
$$\mathbf{\color{red}{\Large{\%\ Profit = \frac{Profit}{Cost\ Price}\times 100}}}$$
Since, \(P = 50\) and \(CP = 150\)
Therefore,
$$\%\ Profit = \frac{50}{150}\times 100$$
$$\%\ Profit = 33.33\%$$
What is Profit And Loss Definition In Economics?
An economic profit or loss is the difference between the revenue received from the sale of an output and the costs of all inputs, as well as any opportunity costs. Revenues earned are deducted from economic profit by deducting opportunity costs and explicit costs.
Implicit costs, such as opportunity costs, are determined by management and are influenced by various scenarios and perspectives.
Economic Profit Or Loss
Accounting profit is often analyzed in conjunction with economic profit. It refers to the profit that a company shows on its income statement. A company’s accounting profit measures actual inflows and outflows and is a requirement of financial transparency.
On the other hand, economic profit is not recorded on a company’s financial statements, nor is it required to be disclosed to regulators, investors, or financial institutions. It is a type of “what if” analysis. Businesses and individuals may choose to consider economic profit when making decisions about production levels or other business options. Foregone profits can be accounted for by economic profit.
The calculation for economic profit can vary by entity and scenario. In general, it can be captured as follows:
$$\mathbf{\color{red}{\Large{Economic\ profit = Revenues\ – Explicit\ costs\ – Opportunity\ costs}}}$$
By excluding the opportunity costs from this equation, just the accounting profit remains, but subtracting the opportunity costs will provide a proxy for comparing the accounting profit with alternative options.
A company’s income statement reveals its explicit costs transparently. Net income after subtracting for direct, indirect, and capital costs is the accounting profit on the bottom line of the income statement. In analyzing per-unit costs, the cost of goods sold is the most basic explicit cost. Using the equation above, a company could also break down its opportunity costs by units to calculate its per-unit economic profit.
Profit can be used as a comparison to the income that could have been gained from a different choice. A person starting their own business can use economic profit as a proxy for their first year of operation. At different phases of the business operation, business managers can look more closely at gross, operating, and net profit versus economic profit with large corporations.
Opportunity Costs
Opportunity costs can be used to analyze business decisions more deeply, specifically when alternatives are available. When considering production levels for different types of products that they produce collectively, but in varying quantities, companies may take opportunity costs into account.
The opportunity cost can be referred to as an implicit cost and is somewhat arbitrary. According to the market and management’s estimations, they can differ from one firm to the next. The opportunity cost is the accounting profit that could have been earned if an alternative choice had been made.
\(An\ individual\ starts\ a\ business\ and\ incurs\ startup\ costs\ of\ \$100,000.\ During\ the\ first\ year\ of\ operation,\\ the\ business\ earns\ revenue\ of\ \$120,000.\ This\ results\ in\ an\ accounting\ profit\ of\ \$20,000.\ However,\ if\ the\\ individual\ had\ stayed\ at\ her\ previous\ job,\ she\ would\ have\ made\ \$45,000.\ In\ this\ example,\ the\ individual’s\\ economic\ profit\ is\ equal\ to:\)
\(\$120,000 – \$100,000 – \$45,000 = -\$25,000\)
This calculation only considers the first year of business. If after the first year, costs decrease to \(10,000\) then the economic profit outlook would improve for future years. If economic profit comes out to zero, the company is said to be in a state of \(normal\ profit\).
In using economic profit in comparison to gross profit, a company may look at different types of scenarios. In this case, gross profit is the focus, and a company would subtract the opportunity cost per unit:
\(Economic\ profit = revenue\ per\ unit\ – COGS\ per\ unit\ – unit\ opportunity\ cost\)
If a company generates \(\$10\) per unit from selling t-shirts with a \(\$5\) cost per unit, then its gross profit per unit for t-shirts is \(\$5\). However, if they could have potentially produced shorts with revenue of \(\$10\) and costs of \(\$2\) then there could be an opportunity cost of \(\$8\) as well:
\(\$10 – \$5 – \$8 = -\$3\)
All things being equal, the company could have earned $3 more per unit if they had produced shorts instead of t-shirts. Thus, the \(-\$3\) per unit is considered an economic loss.
This type of analysis can be used by companies to decide on production levels. Complex scenario analysis of profits can also incorporate indirect costs or other types of implicit costs, depending on the expenditures involved in doing business and the phases of a business cycle.
Economic and Accounting Profit: Definition, Formula & Examples
Important points to Remember
- Explicit costs are monetary costs a firm has. Implicit costs are the opportunity costs of a firm’s resources.
Accounting profit is the monetary costs a firm pays out and the revenue a firm receives. It is the bookkeeping profit, and it is higher than economic profit. $$Accounting\ profit = total\ monetary\ revenue\ – total\ costs.$$ - Economic profit is the monetary costs and opportunity costs a firm pays and the revenue a firm receives. $$Economic\ profit = total\ revenue\ – (explicit\ costs\ +\ implicit\ costs).$$
- Accounting profit = total revenue – explicit costs.
- Positive, negative, or zero economic profit is possible. There is an incentive for businesses to enter the market if economic profit is positive. When profit is negative, firms have an incentive to leave the market. When profit is zero, firms do not have an incentive to enter or exit the market.
- In a competitive market, economic profit can be positive in the short term. In the long run, economic profit must be zero, which is also known as normal profit. Economic profit is zero in the long run because of the entry of new firms, which drives down the market price.
- For an uncompetitive market, economic profit can be positive. Uncompetitive markets can earn positive profits due to barriers to entry, the market power of the firms, and a general lack of competition.
Important Terms To Remember
- \(\mathbf{\color{red}{Explicit\ cost:}}\) A direct payment is made to others in the course of running a business, such as wages, rent, and materials, as opposed to implicit costs, which are those where no actual payment is made.
- \(\mathbf{\color{red}{Implicit\ cost:}}\) The opportunity cost is equal to what a firm must give up in order to use factors which it neither purchases nor hires.
- \(\mathbf{\color{red}{Economic\ profit:}}\) The difference between the total revenue received by the firm from its sales and the total opportunity costs of all the resources used by the firm.
- \(\mathbf{\color{red}{Accounting\ profit:}}\) The total revenue minus costs, properly chargeable against goods sold.
- \(\mathbf{\color{red}{Normal\ profit:}}\) The opportunity cost of an entrepreneur to operate a firm; the next best amount the entrepreneur could earn doing another job.
FAQs
How do you calculate profit?
The formula to calculate profit is Total Revenue – Total Expenses = Profit. Profit is determined by subtracting direct and indirect costs from all sales earned. Direct costs can include purchases like materials and staff wages.
How much is a 30% profit?
There are two types of profit margins. Small business owners use the gross profit margin to measure the profitability of a single product. If you sell a product for $50 and it costs you $35 to make, your gross profit margin is 30% ($15 divided by $50).
How do I calculate net profit on a calculator?
Remember that net profit = total revenues – total expenses, with total expenses including operating expenses, interest expenses, and taxes.
How do I calculate profit in Excel?
The Excel Profit Margin Formula is the amount of profit divided by the amount of the sale or (C2/A2)100 to get value in percentage. Example: Profit Margin Formula in Excel calculation (120/200)100 to produce a 60 percent profit margin result.
How do I calculate profit percentage?
This profit is based on the cost price, hence, the formula to find the profit percentage is: (Profit/Cost Price) × 100.