Calculating profit involves subtracting expenses from revenue. Total revenue includes all sources of income, while total expenses include operating costs and other expenses. Once total profit is calculated, dividing it by total expenses gives the profit percentage.
If you want to calculate profit, there is a surprisingly simple equation that helps you determine how much money a company makes after all its expenses. The equation itself is a basic subtraction – income minus expenses – but determining total income and total expenses to run this math equation can be challenging. With this answer, you can calculate the profit percentage, because this is the number many companies use to measure success.
All you really need to calculate profit is a calculator and some numbers. Subtracting total expenses from total revenue gives you the gross profit for any business or venture. However, finding these two numbers often takes more work than the actual calculation.
When calculating profit, know that total revenue is the amount a business generates over a given period of time, usually over a quarter or a year. This refers to money received from selling goods and services, but it can also include many other income streams. Many companies put any savings into a bank account that collects interest, and if that’s the case, it must be added to the total income. Furthermore, many companies that do not explicitly deal with real estate still own property and include any rent paid or property sales in total revenue. There are many other possible sources of income and all must be calculated as part of a company’s income.
Likewise, a company’s total expenses come from many sources and are even more difficult to calculate than revenue. Traditionally, expenses have included a company’s standard operating costs, such as wages, equipment, employee insurance, utilities, and rent. That’s usually all for a service business, but a goods business has an awful lot of other expenses to consider. The cost of raw materials, the cost of any machinery or equipment used to create the final product, packaging and shipping are costs that are added to the total expenses.
With total revenue and total expenses, it should be relatively easy to calculate profit by subtracting expenses from revenue. Once you have the total profit, simply divide it by the total expenses to calculate the profit percentage. For example, if your business had a total revenue of $110,000 (Dollars) and subtract $100,000 in expenses, you would have earned $10,000 in profits. For the percentage, just divide the profit by the expenses, and in this case, you will have a profit percentage of 10%.
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