Understanding Business Profit: Formulas and Examples
The Profit Formula
Profit = Revenue - Total Expenses
Profit represents the remaining amount after covering all business costs: purchases, salariés, rent, depreciation, taxes, and interest.
Gross Profit vs Net Profit
- Gross profit (gross margin) = revenue - cost of goods sold. It measures production or resale efficiency.
- Net profit = gross profit - operating expenses - taxes - interest. This is the bottom line that belongs to owners or shareholders.
Concrete Example
- Revenue: 100,000 EUR
- Cost of goods sold: 40,000 EUR
- Gross profit: 60,000 EUR (60% gross margin)
- Operating expenses: 25,000 EUR
- Taxes and interest: 5,000 EUR
- Net profit: 30,000 EUR (30% net margin)