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. Expense

    1. The economic costs that a business incurs through its operations ...
  5. Net Income - NI

    1. A company's total earnings (or profit). Net income is calculated ...
  6. Economic Profit (Or Loss)

    The difference between the revenue received from the sale of ...
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. What is the electronics sector?

    The electronics sector produces electronic equipment for industries and consumer electronics products, such as computers, ... Read Full Answer >>
  6. 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 >>
  7. 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 >>
  8. 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 >>
  9. 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 >>
  10. 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 >>
  11. 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 >>
  12. 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 >>
  13. 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 >>
  14. 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 >>
  15. 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 >>
  16. 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 >>
  17. 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 >>
  18. 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 >>
  19. 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 >>
  20. 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 >>
  21. 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 >>
  22. 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 >>
  23. 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 >>
  24. 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 >>
  25. 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 >>
  26. 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 >>
  27. 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 >>
  28. 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. Investing

    What is Comprehensive Income?

    Comprehensive income is a part of the owners’ equity section of the balance sheet.
  8. Economics

    Explaining Financial Analysis

    Financial analysis is a general term that refers to using financial data to make business and investment decisions.
  9. Economics

    What Does Debit Mean?

    Debit is an accounting term used to refer to the left side of an accounting journal entry. Each debit must be offset by an equal credit entry.
  10. Taxes

    What's an Audit?

    An audit is an objective examination of accounting records that makes sure the records are a fair and accurate representation of the transactions they claim to represent.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center