Profit refers to a gain arising from business operations. A company or entity that engages in business does so in order to make money – to make a profit. The profit is calculated by subtracting all the expenses from the money that the company makes. When the resulting figure is positive, it is dubbed profit. When the resulting figure is the opposite – negative – it is dubbed loss.
A company must make a profit in order to keep its operations going. The profit is the basis from which the taxes that the company is liable for are computed. The profit is also important in that it is the basis for the paying of dividends to stock holders. Some measures of a company’s profit include increase in the company’s assets, decrease in the company’s liabilities, or increase in the owner’s equity – or a combination of these.
Net profit or the bottom line is more often used to denote exactly how much a company has earned within a given period of time. While this period of time may vary, it usually is one year. Again, the net profit is computed by subtracting all the expenses of the company from the total revenue it has within a given period of time. Other terms include net earnings and net income.