Profits

Profit is a measure of the financial gain that a business earns from its activities. In accounting terms, profit is the difference between revenue and costs over a given period. It can be framed in several ways, including accounting profit, which uses standard financial reporting rules, and economic profit, which subtracts opportunity costs of resources not reflected in the accounting records. Profit signals business performance and sustainable operations.

Common profit concepts include gross profit, operating profit, and net profit. Gross profit equals revenue minus cost of goods sold. Operating profit subtracts operating expenses from gross profit. Net profit, also called net income, subtracts interest, taxes, and all other costs from revenue. Some analyses also use EBITDA, which excludes interest, taxes, depreciation, and amortization, to assess underlying operating performance.

Profitability is assessed with margins and returns. Profit margin = net profit divided by revenue; gross margin = gross profit divided by revenue; operating margin = operating profit divided by revenue. Return on assets and return on equity relate profit to the size of assets or shareholders’ funds. Profit levels influence investment, hiring, pricing, and strategy, and are affected by demand, costs, competition, and regulation.

Limitations include retrospective nature, accounting choices, and the separation of accounting profit from cash flow. Nonfinancial value, intangible assets, and one‑time items can distort comparisons. In economics, profit is also tied to opportunity costs and market structure; in competitive equilibrium, long‑run profits tend toward zero. Understanding profit requires considering both the accounting signals and the broader business context.