Profit

AAA

DEFINITION of 'Profit'

A financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs and taxes needed to sustain the activity. Any profit that is gained goes to the business's owners, who may or may not decide to spend it on the business.

Calculated as:

 

Profit

INVESTOPEDIA EXPLAINS 'Profit'

Profit is the money a business makes after accounting for all the expenses. Regardless of whether the business is a couple of kids running a lemonade stand or a publicly traded multinational company, consistently earning profit is every company's goal.

The path toward profitability can be long. For example, online bookseller Amazon.com was founded in 1994 and did not produce its first annual profit until 2003. Many start ups and new businesses fail when the owners run out of capital to sustain the business.

VIDEO

Loading the player...
RELATED TERMS
  1. House Money Effect

    The tendency for investors to take more and greater risks when ...
  2. Corporate Profit

    A statistic reported quarterly by the Bureau of Economic Analysis ...
  3. Return On Average Assets - ROAA

    An indicator used to assess the profitability of a firm's assets. ...
  4. Standalone Profit

    The profit associated with the operation of a single project ...
  5. Expense

    1. The economic costs that a business incurs through its operations ...
  6. Economic Profit (Or Loss)

    The difference between the revenue received from the sale of ...
RELATED FAQS
  1. How many votes am I entitled to, if I own ordinary shares of a company?

    If an investor owns one ordinary share of a company, that investor is entitled to one vote on all of that company's major ... Read Full Answer >>
  2. What level of research and development compares to sales is typical in the electronics ...

    The electronics sector averages spending 8 to 10% of sales revenue on research and development, although the semiconductor ... Read Full Answer >>
  3. Does stockholders equity accurately reflect a company's worth?

    Stockholders' equity is one method to evaluate a company's worth. It tends to work better for companies in established industries ... Read Full Answer >>
  4. How strong are the barriers to entry in the oil and gas sector?

    The barriers to entry in the oil and gas sector are extremely strong and include high resource ownership, high startup costs, ... Read Full Answer >>
  5. Which segments of the chemicals sector are showing the fastest growth?

    Chemicals sector segments showing the fastest growth as of 2015 are agricultural chemicals, specialty chemicals and pharmaceuticals. ... Read Full Answer >>
  6. Why are trends in rig count important to investors in the oil and gas sector?

    Trends in rig counts are important to investors in the oil and gas sector because they reveal the sector's supply dynamics. ... Read Full Answer >>
  7. How can I merge technical analysis and fundamental analysis with quantitative analysis ...

    It is important for a sole proprietor with no employees to register as a limited liability company because an LLC provides ... Read Full Answer >>
  8. Why is it important for a business to understand prime costs?

    Prime costs are defined as the direct expenses associated with producing a product or service and are most commonly referenced ... Read Full Answer >>
  9. What are the primary activities of Michael Porter's value chain?

    The primary activities of Michael Porter's value chain are inbound logistics, operations, outbound logistics, marketing and ... Read Full Answer >>
  10. What is the electronics sector?

    The electronics sector produces electronic equipment for industries and consumer electronics products, such as computers, ... Read Full Answer >>
  11. What is the point of developing a business model?

    A business model is a plan developed by the business owner. Business models explain how businesses plan to attract clients ... Read Full Answer >>
  12. What is the importance of residual value in an automobile lease?

    The residual value of a car is often used by banks and auto dealerships to determine how much to charge per month for a lease. ... Read Full Answer >>
  13. How does the law of diminishing returns affect marginal revenue?

    The law of diminishing returns is better thought of as the law of increasing opportunity costs. The law states that -- if ... Read Full Answer >>
  14. To what extent do changing input prices affect the profitability of the chemicals ...

    The chemicals sector is strongly influenced by raw materials and commodities prices. Price volatility is a significant enough ... Read Full Answer >>
  15. What other sectors are most highly correlated with the aerospace sector?

    Sectors that correlate closely with the aerospace sector include the aviation and defense industries. These industries all ... Read Full Answer >>
  16. How can I use the load factor as an indicator for the profitability of the airline ...

    A high load factor indicates that an airline has full planes with most seats occupied by passengers. Airlines have high fixed ... Read Full Answer >>
  17. How much revenue in the airline industry comes from business travelers compared to ...

    Airlines receive about 60 percent of their revenue from consumers directly and the other 40 percent from selling frequent-flier ... Read Full Answer >>
  18. How is marginal revenue related to the marginal cost of production?

    The marginal cost of production and marginal revenue are economic measures used to determine the amount of output and the ... Read Full Answer >>
  19. How does government regulation impact the aerospace sector?

    The aerospace sector, primarily including companies operating airlines as well as aircraft manufacturers, is heavily regulated ... Read Full Answer >>
  20. How is profit maximized in a monopolistic market?

    In a monopolistic market, there is only one firm that produces a product. There is absolute product differentiation because ... Read Full Answer >>
  21. Which terms should be included in a partnership agreement?

    Partnerships can be complex depending on the scope of business operations and the number of partners involved. To reduce ... Read Full Answer >>
  22. How do operating expenses affect profit?

    As a general rule, an increase in any type of business expense lowers profit. An income statement has three levels of profit, ... Read Full Answer >>
  23. Why are business ethics important?

    Several factors play a role in the success of a company that are beyond the scope of financial statements alone. Organizational ... Read Full Answer >>
  24. How important are business ethics in running a profitable business?

    A number of factors play a part in making a business profitable, including expert management teams, dedicated and productive ... Read Full Answer >>
  25. What are the primary advantages of forming a joint venture?

    As an alternative to a business merger or acquisition, forming a joint venture is a common business strategy used among companies ... Read Full Answer >>
  26. What causes dividends per share to decrease?

    Dividends per share (DPS) is the sum of all dividends a company pays out over a fiscal year divided by the number of outstanding ... Read Full Answer >>
  27. How did Rupert Murdoch become a media mogul?

    Rupert Murdoch's father was a journalist and newspaper owner in Australia. Upon his death in 1952, Rupert inherited the News ... Read Full Answer >>
  28. Why do most economists favor capitalism?

    Capitalism is characterized by market production of the goods and services needed in an economy and the private ownership ... Read Full Answer >>
  29. Is residual income considered profit?

    In some cases residual income can be considered profit. Residual income is the amount of income a person has after all personal ... Read Full Answer >>
  30. How does the invisible hand affect prices in the Microeconomic Pricing Model?

    It's a little misleading to describe the market's invisible hand as an actual entity that acts on and affects prices. It ... Read Full Answer >>
  31. What is more important for a business, profitability or growth?

    To be successful and remain in business, both profitability and growth are important and necessary for a company to survive ... Read Full Answer >>
  32. Why do analysts look at operating cash flow?

    Analysts look at operating cash flow when considering the financial health of a business entity. Insufficient cash flow may ... Read Full Answer >>
  33. What's more important, cash flow or profits?

      Cash flow and profits are both crucial aspects of a business. Cash flow is the inflow and outflow of money from a business. ... Read Full Answer >>
Related Articles
  1. Investing Basics

    What is Profit?

    Profit is a general term used to denote when earnings exceed the expenses incurred to generate those earnings.
  2. Markets

    A Look At Corporate Profit Margins

    Take a deeper look at a company's profitability with the help of profit margin ratios.
  3. Personal Finance

    Early Monopolies: Conquest And Corruption

    This structure can be very effective, but it is also known for its abuse of power.
  4. Forex Education

    Understanding The Income Statement

    Learn how to use revenue and expenses, among other factors, to break down and analyze a company.
  5. Forex Education

    The Myth Of Profit/Loss Ratios

    Determine whether your trading approach is only profitable on paper.
  6. Markets

    Introduction To Fundamental Analysis

    Learn this easy-to-understand technique of analyzing a company's financial statements and reports.
  7. Economics

    Understanding the Top Line

    Top line refers to a company’s gross sales without any reductions for discounts or returns.
  8. Economics

    What's an Allowance for Doubtful Accounts?

    The allowance for doubtful accounts represents the percentage of the accounts receivable the company expects to write-off as uncollectible.
  9. Fundamental Analysis

    Understanding Activity Ratios

    Activity ratios measure how effectively a business uses its assets.
  10. Investing Basics

    What is Accrued Income?

    In a mutual fund, accrued income is earnings that have accumulated over the year, but have not yet been paid out to shareholders.

You May Also Like

Hot Definitions
  1. Dog And Pony Show

    A colloquial term that generally refers to a presentation or seminar to market new products or services to potential buyers.
  2. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  3. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  4. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  5. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  6. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!