What Is Profit?

Profit is a financial benefit that is realized when the amount of revenue gained
from a business activity exceeds the expenses, costs, and taxes needed to
sustain the activity. Any profit that is gained goes to the business's owners, who
may or may not decide to spend it on the business. Profit is calculated as
total revenueless total expenses.

What Does Profit Tell You?

Profit is the money a business makes after accounting for all expenses.
Regardless of whether the business is a couple of kids running a lemonade stand
or a publicly traded multinational company, consistently earning profit is every
company's goal. As a result, much of business performance is based on
profitability in its various forms.

Some analysts are interested in top-line profitability, whereas others are

interested in profitability before expenses, such as taxes and interest, and still
others are only concerned with profitability after all expenses have been paid.

There are three major types of profit that analysts analyze: gross profit, operating
profit, and net profit. Each type gives the analyst more information about a
company's performance, especially when compared against other time periods
and industry competitors. All three levels of profitability can be found on
the income statement.

Gross, Operating, and Net Profit

The first level of profitability is gross profit. Gross profit is sales minus the cost of
goods sold. Sales are the first line item on the income statement, and the cost of
goods sold (COGS) is generally listed just below it. For example, if Company A
has $100,000 in sales and a COGS of $60,000, it means the gross profit is
$40,000, or $100,000 minus $60,000. Divide gross profit by sales for the gross
profit margin, which is 40%, or $40,000 divided by $100,000.

\text{Gross Profit} = \text{Total Sales} -

\text{COGs}Gross Profit=Total Sales−COGs
The second level of profitability is operating profit. Operating profit is calculated
by deducting operating expenses from gross profit. Gross profit looks at
profitability after direct expenses, and operating profit looks at profitability after
operating expenses. These are things like selling, general, and administrative
costs(SG&A). If Company A has $20,000 in operating expenses, the operating
profit is $40,000 minus $20,000, equaling $20,000. Divide operating profit by
sales for the operating profit margin, which is 20%.
\begin{aligned} &\text{Operating Profit} = \text{Gross Profit} -
\text{Operating Expenses}\\ &\text{Operating Profit Margin} =
\frac{\text{Operating Profit}}{\text{Total Sales}} \end{aligned}
Operating Profit=Gross Profit−Operating ExpensesOperating Profit Margi
n=Total SalesOperating Profit
The third level of profitably is net profit. Net profit is the income left over after all
expenses, including taxes and interest, have been paid. If interest is $5,000 and
taxes are another $5,000, net profit is calculated by deducting both of these from
operating profit. In the example of Company A, the answer is $20,000 minus
$10,000, which equals $10,000. Divide net profit by sales for the net profit
margin, which is 10%.

\text{Net Profit} = \text{Operating Profit} - \text{Taxes \&

Interest}Net Profit=Operating Profit−Taxes & Interest
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BUSINESS MATH: PROFIT AND LOSS

June 17, 2012

TITLE: BUSINESS MATH: PROFIT AND LOSS

I’m Carla Gatdula, 19 years old from Sta. Rosa Laguna. Currently
studying Industrial Design at the University of Santo Tomas for the
third year in college, belongs to the section 3IND-2. This is actually
the first time that I’d be doing a blog. I often surf the net for fun, but
thus blog thing is a first for me.

On the first day of our class, we had a discussion about Loss and
Profit. Where Profitis defined as the amount by which the sales are
greater that the cost of goods sold and the operating expenses.
 Profit can also mean as gain or Margin. In getting the profit, there
are formulas to be followed:

 Gross Sales – Refunds and Allowances = NET SALES

 Gross Profit – Operating Expenses = NET PROFIT
For example:

1. National Bookstore has net sales of P 20, 458.00 and the cost of
goods sold P 4, 358.00 therefore, how much is the net profit of
National Bookstore? The operating expenses account is P 12,
000.00.
Solution:

P 20, 458.00 net sales

– P 4, 358.00 cost of goods

P 16, 100.00 gross profit

– P 12, 000.00 operating expenses

P 4, 100.00 net profit

What do we mean when we say Gross Sales, Gross Profit,

Refunds, Net Sales, Net Profit and Operating Expenses? Gross
Sales is the actual amount received for selling the good, Gross
Profit is the difference between the net sales and the cost of goods
sold, Refunds is defined as the amounts returned, Net Sales are
obtained when refunds are being deducted from the gross sales,
Net Profit is the amount obtained when all the selling expenses or
other cost of doing business are deducted from the gross profit and
the Operating Expenses or overhead are selling expenses such as
salaries or wages, traveling expenses, rentals, water, electric bills,
commissions, taxes.
 It is not only getting the net sales and net profits are the ones
discussed in the class but also getting the gross profit. How are we
going to get the gross profit? Here is an example.

1. The Blackberry Company has sales of P 1, 000, 000.00 for the first
eight months of the business. The expenses are the following:
Wages and salaries P 353, 163.00, rent to cost of goods
amounting to P 333,300.00, light and water bills P 430, 785.00. If
there is a refund of P 78, 453.00 for defective phones, compute for
net sales, gross profit, and net profit.
Solution:

Gross Sales P 1, 000, 000.00

Less: Refunds P 78, 453.00

1. Net Sales P 921, 547.00

Less: Cost of Goods P 333, 300.00

1. Gross Profit P 588, 247.00

Less: Operating Expenses

Salaries and Wages P 353, 163.00

Light and Water P 430, 785.00

Rent P 333, 300.00

Total Operating Expenses P 1, 117, 248.00

Net Profit P 529, 001.00

We have also tackled about the inventory. Inventory is an itemized

list of goods on hand. How do we do an inventory? In a company
every end of the month inventory is made. For example in a market,
the owner or the employee makes a list of the each product, its
quantities, its price, how many was the product at the first and how
many product was sold at the end of the month, etc. I remember
when I walked in at the Ministop, there was this employee who
keeps on roaming around the market, counting the products,
calculating the expenses and so on. It was an inventory being done.

I have mentioned the refund above. What is a refund? Refund is

the amount or money returned whenever you have sold a defective
product. When you buy at mall or anywhere, you should always
check for the product if it is completely working, the appearance is
not damaged meaning no scratches. If so the products you have
sold are defective, the consumer has the right to get a refund of
what they have paid you for the product. With that case, your money
or what you paid for what you consumed will be returned to you.
Refund only happens when the product itself is defective. You
cannot get a refund if you were the one who got to apply or give
damage to the product.

When you are to give price to a certain product, you do not just give
what pops on your mind. In pricing your product, you have to
compute for your operating expenses. But first, what is operating
expenses? It is the way of selling expenses such as salaries or
wages, traveling expenses, rentals, water, electric bills,
commissions, taxes. You price your product by all the expenses you
have had for the product. Example you are planning to create a
perfume business. You have a quantity of 300 bottles of perfume at
P 1, 000.00 each when you bought it at the main store. You had a
total of P 300.00 for your transportation back and forth, and renting
a carrier cost you P 200.00. Compute for your buying price this way:
300 bottles of perfume for P 300,000.00 plus P 500.00 for
transportation and carrier, you get P 300, 500.00. Your buying price
now would be P 3, 005.00.

Studying Business Math would help you find a job, or even make a
job of your own. Whatever college course you have taken, if it fails
you then business math comes in your way. You do not have to be
always present while working. Nowadays since technology and
internet are widely used, you can just create your own site and start
selling your products online. Are you familiar with sulit.com.ph? It is
a buying and selling site where you can just post your blog and
pictures of your product. You might be worrying about the payment.
It could be done online using credit card or other transactions that
can be done online or you can also pay personally so you may also
see the product before you purchase it.

Profit and Loss

Your friend gives you Rs. 100 for a pen that you got for Rs. 90. You sell
it to him and then buy a cricket bat from him for Rs. 3000. Later you
find out that the bat was worth Rs. 2995. Did you lose money or did you
make a profit? When you do a business transaction like selling things if
you earn some amount in the transaction that amount is called the profit
and if you lose some amount then it is called loss. Let’s compare some
quantities with profit and loss.

Comparison Using Profit and Loss

 Cost Price: The amount paid to purchase an article or the price at
which an article is made is known as its cost price. The cost price is
abbreviated as C.P.
 Selling Price: The price at which an article is sold is known as its
selling price. The selling price is abbreviated as S.P.
Profit
If the selling price (S.P.) of an article is greater than the cost price
(C.P.), the difference between the selling price and cost price is called
profit. Thus, if S.P. > C.P., then

Profit=S.P.–C.P.S.P.=C.P.+ProfitC.P.=S.P.–Profit

Profit Percentage
The profit percent is the profit that would be obtained for a C.P. of Rs
100 i.e,

Profitpercent=(ProfitC.P.)×100
Loss
If the selling price (S.P.) of an article is less than the cost price (C.P),
the difference between the cost price (C.P.) and the selling price (S.P.)
is called loss. Thus, if S.P. < C.P., then

Loss=C.P.–S.P.C.P.=S.P.+LossS.P.=C.P.–Loss

Loss percentage

The loss percentage is the loss that would be made for a C.P. of Rs 100,
that is

Losspercent=(LossC.P.)×100

Neutral Situation

If S.P. = C.P., then seller neither gain money or lose any.

Solved Examples for You on Profit and Loss

Example 1

A shopkeeper buys a toy for Rs 250 and sells it for Rs 285. Find his
gain and gain percent.

Solution: We have, C.P. of the toy =Rs250 and S.P. of the toy = Rs285

Since S.P. > C.P .So, there is profit/gain given by:

 Profit=S.P.–C.P.Profit=Rs.285–Rs.250Profit=Rs.35
Now lets calculate gain in percentange:

Profit%=(ProfitC.P.)×100Profit%=(35250.)×100%Profit
Hence, Gain = Rs 35 and Gain% =14%

Example 2

Rishi bought a wrist watch for Rs 2200 and sold it for Rs 1980. Find has
loss and loss percent.

Solution: We have, C.P. of watch =Rs2200 and S.P. of watch =1980

Since S.P. < C.P. So, there is a loss given by

Loss=C.P.–S.PLoss=Rs.2200−Rs.1980Loss=Rs.220
Now, let’s calculate loss in percentage

Losspercent=(LossC.P.)×100
Hence, Loss =Rs220 and Loss% =10%

Example 3

Girl buys lemons at 4 for Rs 3 and sells them at 5 for Rs 4. How much
percent loss or gain does she make if she sold total 20 lemon?

Solution – It is given that the girl buys lemons at 4 for Rs 3 and sells
them at 5 for Rs 4. Therefore, to avoid frictions assume that the girl
buys and sales 4 times 5= 20 lemons.

We have,
C.P.of4lemons=Rs3/−C.P.of1lemon=Rs34/−C.P.of20lemons=Rs34×2
0=Rs15/−S.P.of5lemons=Rs4/−S.P.of1lemon=Rs45/−S.P.of20lemons
=Rs45×20=Rs16/−
Clearly, S.P.> C.P. It means girl makes Profit.

Profit=S.P.–C.P.Profit=Rs.16−Rs.15Profit=Rs.1/−
Hence, Gain in percentage

Profitpercent=(ProfitC.P.)×100
Profit%=(115)×100%
Profit%=203%
Cost Price: The price at which an article is bought or purchased is called its cost price. (C.P.)

Selling Price: The price at which an article is sold is called its selling price. (S.P.)

Profit: When an article is sold for more than what it costs, we say that there is a ‘profit’
or gain.

Loss: When an article is sold for less than what it costs , we say that there is a ‘loss’.

When the selling price is equal to the cost price, then there is neither profit nor loss.

We recall a few important facts below:

1. Profit = Selling Price – Cost Price

2. Loss = Cost Price – Selling Price
3. Cost Price = Selling Price – Profit or, Selling Price + Loss
4. Selling Price = Cost Price + Profit or, Cost Price – Loss

5. Profit or Loss per cent =

Caution: Profit or loss per cent is never calculated on the number of items sold, but on
the cost prices of the items.

In calculating any percentage change, the increase or decrease is expressed as a

percentage of the first value. Buying comes before selling , thus, profit or loss is
expressed as a percentage of the buying price ( i.e., the cost price ) and not of the
selling price.
Overheads – If there are some additional expenses incurred on the transportation ,
repair etc of an article purchased, they are included in the C.P. of the article and are
called ‘overheads’.

3 Major Type of Profit and Loss Problems

Type 1 : Find Profit or Loss Percent.

Example 1: What is the profit per cent if a table bought for is sold for ?

Solution: A table is bought for and sold for .

Total profit

Profit %

Example 2: Arun buys a T.V. for . The transportation charges are and
the installation charges are . He then sells it to his friend for . Find the
loss per cent.

Solution: .

Here transportation and installation charges fall under overhead costs.

More results on S.P. and C.P.:

1. If there is a profit of then,

2. If there is a loss of then,

From 1 and 2 , we derive that :

3. , when there is a profit of

4. , when there is a loss of

Type 2 : Find S.P. when C.P. and Profit (or loss) Percent Given

Example 1: A man bought a T.V. set for and he sold it at a profit of . Find
the selling price.

Solution: Let the cost price be

Then, S.P. at a profit of

When C.P. is S.P. is

Then, When

Alternative Method:

where and

Example 2: A man buys a cycle for and sells it at a loss of . Find the selling
price of the cycle.

Solution: Let the C.P. be

Then, S.P. at a loss of

When

Then, when
Alternative Method:

where loss and

Type 3 : Find Cost Price.

Example 1: Find the cost price of an article which is sold at a profit of for .

Solution: , Profit %

If , then

If , then

If , then

Alternative Method:

where

A few harder problems on profit and loss:

Example 1: By selling a plot of land for a person loses . At what price

should he sell it so as to gain ?

Solution: On selling the plot for , he loses

He now wants a profit of of

Example 2: A man sells two watches at each. On one he gains and on the
other he loses . What is his gain or loss per cent on the whole transaction ?

Solution: S.P. of the first watch , gain

C.P. of first watch

Similarly, C.P. of the second watch on which he

loses

total C.P. of the two watches

And total S.P. of the two watches

net loss

Discount

Marked Price: The price printed on an article or on a tag tied to it or the advertised
price or the listed price is called the marked price , or, M.P. of the article.

Sometimes to dispose of the old , damaged or perishable goods the retailers offer these
goods at reduced prices. The retailers also reduce prices to increase the sale by
reducing the marked prices of the articles. The amount deducted from the original
marked prices is called ‘Retailer’s discount’ or simply ‘retail discount’ which is generally
expressed as per cent or a fraction of the marked or original price.

Net Price (Selling Price): The price of an article after deducting discount from the
marked price is called the net price of the article.

NOTE: Discount is always calculated on the marked price.

In solving the problems on discount, the following formula are generally used:

1.

2.

3. If discount is , then,
Example 1: The marked price of a pair of shoes is . The shopkeeper allows an off
season discount of on it. Calculate – i) the discount and ii) the selling price.

Solution: and

i)

ii)

Example 2: The marked price of an article is marked above the C.P. and then it is
sold at a discount of . What is the net gain per cent ?

Solution: Let the of the article be

more than
the

Exercise

1. A cloth merchant on selling of cloth obtains a profit equal to the selling price
of of cloth. Find his profit per cent.
 2. An article was sold at a loss of . Had it been sold for more, there would have
been a profit of . Find the cost price.
3. A shopkeeper allows off on the marked price of an article and still gets a profit
of . What is the marked price of the article when it’s cost price is ?
4. By selling bananas, a vendor loses the selling price of bananas. Find his loss per
cent.
5. A tradesman allows a discount of on the marked price of goods. How much above
the cost price must he mark his goods to make a profit of ?

Profit and Loss

Back to Top

Profit and loss both are very important to learn the concepts of math.

Explanation:

 Suppose a shopkeeper buys an article from a manufacturer or wholesale dealer,

the money paid by the shopkeeper to buy the article is called the cost price of the
article. Generally we write C.P. for the cost price.
 The shopkeeper sells the article which is generally more than its C.P. The price
at which the shopkeeper sells the article is called the selling price of the article.
Generally we write S.P. for the selling price.
 If the S.P. of an article is greater than the C.P., then the shopkeeper has earned
a gain or profit.

Solved Examples
Question 1: A television set was bought for 10,500 dollar and sold at $ 9,500. Find the profit or loss.
Solution:

C.P. of the television set = 10,500

S.P. of the television set = 9,500

Here C.P. is greater than S.P. so there is a loss.

Loss = C.P. – S.P.

= 10,500 – 9,500 = 1,000.

Question 2: A bag is bought at 200 and sold at a profit of 10%. Find the selling price.
Solution:
Profit = 10% of 200

= × 200 = $ 20
S.P. = C.P. + Profit
= 200 + 20 = 220

 Selling Price : The market price that is taken to sell a product is the selling price.
  Cost Price: The actual price of a product is the cost price.

 Profit: If the selling price is greater than the cost price, the difference of the prices is the profit.

 Loss: If the selling price is less than the cost price, the difference of the prices is the loss.

 Discount: The reduction given to the selling price of a product is the discount.

 Simple Interest: Simple interest is that interest that is counted against the principal amount
or the portion of principal amount that remains unpaid.

 Compound Interest: Compound interest is the investment rate that grows exponentially.
 Let's understand this in detail. While doing business one may earn a good profit or face loss. The
price of an article is fixed by taking into consideration of its cost price, profit, margin, trade discount,
cash discount etc. The price marked on the article is called marked price or catalog price. For
trading purposes the manufacturer offers a discount in the marked price to the buyer. This is called
trade discount. In addition to trade discount if the buyer pays cash against goods he gets another
discount called cash discount. The price of the article after deducting the trade discount and cash
discount is called as the selling price. Thus we have Selling price = Cost price - Discounts.
 Profit = Selling price - Cost price

Solved Example
Question: A manufacturer gains 25% after allowing a trade discount of 15% of the list price of an article.
The cost of manufacturing the article is increased by 25% and the catalog price is increased by 20% only.
Find the new profit percent keeping the same rate of discount.
Solution:

Let the catalog price be 100 dollars

Discount = 15 dollars

Selling price = 85 dollars

Cost price = 85 x 100/125

= 68 dollars

Increase in cost price = 25%

New cost price = 68 x = 85 dollars

New catalog price = (100 + 20) = 120 dollars

New selling price=120 x = 102 dollars

New profit= 102 - 85 = 17 dollars

Profit percent = x 100 = 20

olved Examples
Question 1: In selling a sewing machine, a person loses 5%. If he has sold it for $120 more, he would
have got a profit of 10%. What is its cost price?
Solution:

Let the cost price be x dollars

Loss = 5%

Selling price = 95x/100

By selling it for 120 dollars more profit is 10%

Therefore,

On simplifying, x = 800 dollars

Cost price of the sewing machine = 800 dollars

Question 2: A fruit seller bought 55 fruits for the cost 120. Among the 64 fruits 9 are damaged. Then he
sold the undamaged fruits for the cost 32 each. Calculate and find the profit or loss percent of his
business.
Solution:
Cost Price of 55 fruits = $120.

9 are damaged fruits.

Remaining fruits = 55 – 9 = 46

Selling Price of one fruit is = $32

Selling Price of 46 fruits = 46 × 32 = $1472.

Here the sales Price is greater than Cost Price.

Profit = Selling Price – Cost Price

= 1472 – 120 = $1352

Profit % = profitcostpriceprofitcostprice × 100

=1352/20 × 100
Profit percentage is = 1126.66 %