profit(redirected from Economic Profit)
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Profit, which is also called net income or earnings, is the money a business has left after it pays its operating expenses, taxes, and other current bills.
When you invest, profit is the amount you make when you sell an asset for a higher price than you paid for it. For example, if you buy a stock at $20 a share and sell it at $30 a share, your profit is $10 a share minus sales commission and capital gains tax if any.
profitthe difference that arises when a firm's SALES REVENUE is greater than its total COSTS. GROSS PROFIT is the difference between SALES REVENUE and the COST OF SALES, while NET PROFIT is equal to gross profit less selling distribution, administration and financing costs. PROFIT AFTER TAX is the net profit attributable to shareholders after taxes have been paid.
Profit depends on two main factors:
- average profit margins or profit per £1 of sales. If costs increase the profit margins will be squeezed; if competition forces selling prices downward margins will be similarly squeezed, and vice versa;
- sales turnover. Any increase in sales value will tend to increase profits. See PROFIT AND LOSS ACCOUNT.
profitthe difference that arises when a firm's TOTAL REVENUE is greater than its TOTAL COSTS. This definition of‘economic profit’ differs from that used conventionally by businessmen (accountingprofit) in that accounting profit takes into account only explicit costs. Economic profit can be viewed in terms of:
- the return accruing to enterprise owners (entrepreneurs) after the payment of all EXPLICIT COSTS (payments such as wages to outside factor-input suppliers) and all IMPLICIT COSTS (payments for the use of factor inputs - capital, labour - supplied by the owners themselves);
- a residual return to the owner(s) of a firm (an individual ENTREPRENEUR or group of SHAREHOLDERS) for providing capital and for risk-bearing;
- the ‘reward’ to entrepreneurs for organizing productive activity, for innovating new products, etc., and for risk taking;
- the prime mover of a PRIVATE ENTERPRISE ECONOMY serving to allocate resources between competing end uses in line with consumer demands;
- in aggregate terms, a source of income and thus included as part of NATIONAL INCOME. See also PROFIT MAXIMIZATION, NORMAL PROFIT, ABOVE-NORMAL PROFIT, RISK AND UNCERTAINTY, NATIONAL INCOME ACCOUNTS.