How to calculate the profit formula

Profit characterizes the final results of the production process, is an indicator of the financial condition of the enterprise. Of course, variable factors can influence the profit size, for example, the political situation in the country, natural disasters, the state of the company's reputation, under the influence of which the profit can fluctuate in the short term. The large-scale advertising campaigns of a company may have the same effect. However, in general, profit for a stably functioning enterprise is more or less constant, and this indicator enables owners to plan future activities. Profit demonstrates how efficiently the production and sales process is organized, whether costs are too high and whether the existence of a given business unit is generally beneficial. How to calculate profit?

Instruction manual

one

Determine the amount of gross income - the total revenue from the sale of goods or services. Find the amount of net income - the total revenue from the sale of goods or services minus the cost of the returned goods (services) and the discounts provided to customers. Calculate the total costs for the manufacture of goods and the provision of services included in the cost of production. Find the indicator of gross profit of the enterprise, which is the difference between the net income from sales and the cost of goods sold or services provided. The gross profit formula looks like the difference between net income and cost of production.

2

Define a net profit indicator. For this, taxes, fines, penalties, interest on loans, and operating expenses should be deducted from the gross profit. The latter include the costs of finding partners, making deals, expenses for raising the qualifications of employees, costs arising from force majeure situations. The net profit indicator just reflects the final result of the company’s activity, shows how profitable this type of activity is. Net profit is used by entrepreneurs to increase working capital, the formation of various funds and reserves, as well as for reinvestment in production. The amount of net profit directly depends on the size of gross profit, as well as on the amount of tax payments. If the company is a joint-stock company, dividends to shareholders of the company are calculated based on the amount of net profit.

3

Among the main functions of profit can be distinguished stimulating. It is the main source of cash injections, and maximizing the profitability of the company. This will have a positive effect on the growth of wages of employees of the enterprise, and on the rate of renewal of fixed assets, the introduction of the latest technologies. The result is an increase in production. The profit level is important not only directly for the company, but also for the growing state. Thanks to the profits of firms, budgets of different levels are formed. From it taxes are paid to the state budget. In market relations, profit has an evaluation function. Its level affects the value of the company and its competitiveness across the industry. The control function of profit is also distinguished. Lack of profit means unprofitable company. As you can see, it is very important to focus on the size of profit, which means that its formula just needs to be known for the analysis of economic activity.

4

In addition to the general indicator of profit, there are several types of it. For example, according to the sources of formation, there is profit from sales (from the revenue you need to subtract the cost of production), from operations with securities (the positive difference between income and expenses from operations to sell securities), non-operating (the amount of profit from the sale of goods, sale of property and based on the results of non-operating operations), from investment and financial activities. To find profit from investment activities, you need to subtract the cost of the investment project from the amount of net cash flow for the investment project. Profit from financial activities - the amount of profit from the sale, interest receivable and income from participation in other companies minus interest payable and operating expenses.

5

According to the calculation method that is practiced at a particular enterprise, it is possible to distinguish between marginal, net and gross profit. To find the marginal profit, you need to subtract the variable costs from the income. Depending on the method of paying taxes, there is taxable and non-taxable profit. Taxable income is income minus revenues from which payments to the budget are not deducted. For its calculation, it is necessary to deduct real estate tax, profit from additional tax liabilities and income focused on operations on benefits from the balance sheet income. In economic analysis, indicators such as profit of the past, reporting, planning period, nominal and real profit are used. Par is called profit, which is in the financial statements and corresponds to retained earnings. The real profit is the nominal profit, adjusted for the inflation rate, correlated with the consumer price index. Also, financiers use the concepts of capitalized (aimed at increasing equity) and retained earnings, which is the final financial result minus taxes and other liabilities.

6

Not only external factors can affect the level of profit. The company must apply measures for its growth. For example, you can optimize inventories and stocks, analyze the range of products, identify products for which there is no demand, and take it out of circulation. A more efficient management system also contributes to profit growth. Other measures are automation of production to reduce labor costs and the use of non-waste production.