Written by True Tamplin, BSc, CEPF®
Updated on June 21, 2021
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.
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.
1) Scientific Research
2) Technical Support
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.