Learn: Profit

Welcome!Today we'll learn about profit. This is an essential concept for all businesses, and understanding it will help you see how companies measure their success. Let's get started!

What is Profit?Profit is the financial gain a business makes when its revenue (money earned from sales) is greater than its total costs (expenses incurred to produce goods or services). It is important because it allows businesses to grow, invest, and survive in the long term.

Types of CostsBusinesses incur two main types of costs: fixed costs, which stay the same regardless of output (e.g. rent, salaries), and variable costs, which change with the level of output (e.g. raw materials, packaging). Together, these make up the total costs.

Calculating ProfitTo calculate profit, use the formula: Profit = Revenue - Total Costs. This calculation helps businesses know whether they are making money or losing it, which is vital for decision-making.

Why is Profit Important?Profit allows businesses to reinvest, grow, and pay dividends to shareholders. It can also help businesses survive tough times by acting as a financial cushion.

Ways to Increase ProfitBusinesses can increase profit by increasing revenue (e.g., selling more products or raising prices) or reducing costs (e.g., finding cheaper suppliers or improving efficiency).

Revenue vs ProfitRevenue is the total amount of money a business earns from selling its products or services. Profit is the amount left after deducting all costs from revenue. A business can have high revenue but still make no profit if its costs are too high.

Review Time!Great work! You've learned what profit is, how to calculate it, and why it's important. Let's test your understanding with a few questions.