Profit Definition

Profit Meaning

Profit is the money earned by a business when its total revenue exceeds its total expenses.

Any profit a company generates goes to its owners, who may choose to distribute the money to shareholders as income, or allocate it back into the business to finance further company growth.

The method of calculating profit is simple: subtract a business’s expenses from its total revenue over a fixed amount of time.

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What Is Profit?

There are three primary levels of profit of interest to investors:

1). Gross Profit

Gross profit subtracts only the direct cost of producing goods from the total revenue.

Since the cost of producing goods is an inevitable expense, some investors view this as a measure of a company’s overall ability to generate profit.

2). Operating Profit

Operating profit takes into account both the cost of goods sold and operating expenses such as selling, general, and administrative costs (otherwise known as SG&A).

3.) Net Profit

Net profit, or the bottom line, is the money left over after subtracting all expenses from total revenue.

Net profit can refer to earnings before or after tax, so some use “net net”to clarify net profit after taxes.

Investors use all three metrics as a way to evaluate a company’s health, but net profit is widely accepted as the general definition of profit.

Knowledge Economies

Today, especially in the US and other more developed countries, there is a lot of money to be made in the fields encompassed within a knowledge economy.

Examples include:

1) Scientific Research

2) Technical Support

3) Consulting.

All of which are a result of the growing interconnectedness of the global economy.

Today, with more markets available than ever before as a result of the Internet, expertise has become a vital resource.

Which is why, as we see today why there is such a need for men and women who are skilled technicians, communicators and researchers.

Get Connected with a Financial Advisor

It’s important to understand how profit works in order to be successful, and it can make a big difference on what you do with the money after. Feel free to reach out to a financial advisor in Knoxville, TN to learn about how your business might benefit from our services. For those of you that do not live locally, please visit our financial advisors home page to see the areas we serve.

What Is Profit FAQs

Profit is the money earned by a business when its total revenue exceeds its total expenses.
You calculate profit by subtracting the total expenses from total income. What you have left is your profit.
There are three primary levels of profit of interest to investors: gross profit, operating profit, and net profit.
Any profit a company generates goes to its owners, who may choose to distribute the money to shareholders as income, or allocate it back into the business to finance further company growth.
Investors use all three metrics as a way to evaluate a company’s health, but net profit is widely accepted as the general definition of profit.
True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.