Calculate business profit from revenue, cost of goods sold and operating expenses to get gross, operating and net profit plus each profit margin.
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Business Profit Formula
The following formula can be used to calculate the profit of a business.
- Where GP is the gross profit
- OP is the operating profit
- NP is the net profit
- NS is the net sales
- COGS is the cost of goods sold
- OC is the operating costs
- I is additional income
- E is additional expenses
- T is taxes paid on income
Business Profit Definition
A business's profitability is defined as the total net profit a business earns over a given period of time. Sometimes, this profitability is displayed as a percentage of revenue, also known as profit margin.
How to calculate business profit?
First, determine the net sales and cost of goods sold. For this example, the net sales are $1000.00 and the COGS is $200.00.
Next, using the net sales and COGS we can calculate the gross profit. GP = $1,000.00 - $200.00 = $800.00.
Next, determine the operating costs. This includes any costs associated with running and operating the business itself. For this example, the operating costs are $200.00.
Using the operating costs and gross profit, the operating profit can be calculated using the formula above. OP = $800.00 - $200.00 = $600.00.
Next, determine any additional income, expenses, and taxes. In this case, $100.00 additional income was earned through investments, there was $50.00 in additional expenses, and the company paid $200.00 in taxes.
Finally, using the formula above we can calculate the net profit.
NP = OP + I - E - T
= $600.00 + $100.00 - $50.00 - $200.00
= $450.00.
