What is a Profit?

What is a Profit?

In its simplest form, a profit is the revenue or income gained from an entity after all expenses/overhead is accounted for.

In business, a company deals with a number of expenses - operating expenses (the cost of doing business), fixed costs (overhead), salaries and benefits, legal fees, and so on. If a company’s revenues exceed all of these costs combined, the company is considered profitable. A profit is also known as a company’s bottom line, net earnings, or net profit.

Generally, investors want to favor companies whose profits are positive, high, and consistently rising. But at the same time, there are many companies - particularly in the tech industry - that operate for many years without a profit at all. These companies often times obtain large amounts of private financing in order to get operations off the ground before reaching a point of reporting net earnings. That’s a risk many investors take if a company appears to have a promising future.

With investing, a profit can simply mean selling an asset for more than you bought it for, accounting for any related expenses or taxes. In almost all cases, profits are taxed by the U.S. government, at different rates depending on what kind of profit it is. Profits can also, in some cases, be offset by losses so investors can reduce if not eliminate their tax burden.

What are Profitability Ratios?
What is Net Income?