Profit (Definition, Formula, Types, and Examples) (2024)

Profit in Maths is considered as the gain amount from any business activity. Whenever a shopkeeper sells a product, his motive is to gain some benefit from the buyer in the name of profit. Basically, when he sells the product more than its cost price, then he gets the profit on it but if he has to sell it for less than its cost price, then he has to suffer the loss.

The concept of profit and loss is basically defined in terms of business. Any financial benefit gained in business goes to the owner of the business. Let us learn in this article how to calculate the profit amount and percentage with the help of formulas and related topics.

Table of Contents:

• Definition
• Formula
• Profit Percentage
• Types of Profit
  • Gross Profit
  • Operating Profit
  • Net Profit
• How to Calculate Profit?
• Examples
• FAQs

Profit Definition

In general, the profit is defined as the amount gained by selling a product, which should be more than the cost price of the product. It is the gain amount from any kind of business activity. In short, if the selling price (SP) of the product is more than the cost price (CP) of a product, then it is considered as a gain or profit. It describes the financial benefit obtained if the revenue from the business activity exceeds the taxes, expenses, and so on, which are involved in sustaining business activities.

Profit Formula

Profit is explained better in terms of cost price and selling price. Cost price is the actual price of the product or commodity and selling price is the amount at which the product is sold. So, if the selling price of the commodity is more than the cost price, then the business has gained its profit. Therefore formula to calculate the profit is;

Profit or Gain = Selling Price – Cost Price

But, when the product is sold at selling price lesser than the cost price, it is termed as loss. Therefore,

Loss = Cost Price – Selling Price

Profit Percentage

Once the profit is calculated we can also derive the percentage profit e have gained in any business by the formula given here;

P% = (P/CP) × 100

Where P is the profit and CP is the cost price.

Types of Profit

There are three types of profit used in business. They are:

1. Gross Profit
2. Operating Profit
3. Net Profit

Gross Profit

Gross profit is the amount gained by any business or company after removing the cost associated with the making and selling of the product from the selling price. The revenue yielded in the company’s income after sales of the commodity should be reduced by the amount or cost it took to make the product or provide any service to the customer’s, to get the gross percentage of the profit.

The formula to calculate the Gross Profit is:

Gross Profit = Total Sales – COGs

Where COGs represents the cost of goods sold.

Operating Profit

A business’s operating profit tells what is the contribution of the company’s operations to its profitability. The operating profit is basically the ratio of operating income and sales revenue.

The formula to calculate the Operating Profit is:

Operating profit = Gross Profit – Operating Expenses

Also, Operating Profit Margin = Operating Profit / Total Sales

Net Profit

Net profit includes all the cost amount generated by the business as revenue. It represents the actual sum of money made by any business.

The formula to calculate the Net Profit is:

Net Profit = Operating Profit – (Taxes and Interest).

Companies examine all three types of profit with the help of a profit margin. In such case, the profit, whether gross, operating, or net, is divided by the return. It exhibits how well the business uses its earnings. A large ratio means it makes a lot of profit for each revenue. A low ratio means the business’s costs are consuming into its profits. Ratios vary according to each trade.

Also, read:

How to Calculate Profit?

To calculate the profit gained by any business, follow the steps below:

• Determine the cost price of the products sold.
• Now calculate the total selling price of the products sold.
• Subtract the cost price and selling price, to get the profit amount.
• To calculate the profit margin, divide the profit amount with cost price.
• Multiply the profit margin with 100 to get in percentage.

Profit Examples

Problem 1: If a shopkeeper sells Apple at Rs.200 per kg, whose cost price is Rs.150/- per kg. Then find the profit gained by the shopkeeper.

Solution: Given Cost Price = Rs.150/-

And Selling Price = Rs.200/-

From the formula of profit, we know,

Profit = Selling Price – Cost Price

P = 200 – 150

P = 50

Therefore, the shopkeeper gains Rs.50/- from the business.

Problem 2: Find the gain percentage for the above example.

Solution: By the profit percentage formula, we know,

P% = (P/CP) × 100

Since, P = 50 and CP = 150

Therefore,

P% = (50/150) × 100

P% = 100/3

Problem 3: Sanju sold a digital camera for Rs.5,000, on which he gains 25%. What is the cost price of the camera?

Solution: For the digital camera: Gain = 25%.

Let cost price (C.P.) = Rs.100.

Therefore, selling price (S.P.) = (100 + 25) = 125

When selling price (S.P.) is Rs.125, cost price (C.P.) is Rs.100.

Therefore, when selling price (S.P.) is Rs.5000,

cost price (C.P.) = 100/125 × 5000 = (100 × 5000)/125 = 500000/125 = 4000

Therefore, cost price (C.P.) of the digital camera = Rs. 4000.