Profit in Maths is considered as the gain amount from any business activity. Whenever a shopkeeper sells a product, his motive is to gain some benefit from the buyer in the name of profit. Basically, when he sells the product more than its cost price, then he gets the profit on it but if he has to sell it for less than its cost price, then he has to suffer the loss.
The concept of profit and loss is basically defined in terms of business. Any financial benefit gained in business goes to the owner of the business. Let us learn in this article how to calculate the profit amount and percentage with the help of formulas and related topics.
Table of Contents:
- Profit Percentage
- Types of Profit
- How to Calculate Profit?
In general, the profit is defined as the amount gained by selling a product, which should be more than the cost price of the product. It is the gain amount from any kind of business activity. In short, if the selling price (SP) of the product is more than the cost price (CP) of a product, then it is considered as a gain or profit. It describes the financial benefit obtained if the revenue from the business activity exceeds the taxes, expenses, and so on, which are involved in sustaining business activities.
Profit is explained better in terms of cost price and selling price. Cost price is the actual price of the product or commodity and selling price is the amount at which the product is sold. So, if the selling price of the commodity is more than the cost price, then the business has gained its profit. Therefore formula to calculate the profit is;
Profit or Gain = Selling Price – Cost Price
But, when the product is sold at selling price lesser than the cost price, it is termed as loss. Therefore,
Once the profit is calculated we can also derive the percentage profit e have gained in any business by the formula given here;
P% = (P/CP) × 100
Types of Profit
There are three types of profit used in business. They are:
- Gross Profit
- Operating Profit
- Net Profit
Gross profit is the amount gained by any business or company after removing the cost associated with the making and selling of the product from the selling price. The revenue yielded in the company’s income after sales of the commodity should be reduced by the amount or cost it took to make the product or provide any service to the customer’s, to get the gross percentage of the profit.
The formula to calculate the Gross Profit is:
Gross Profit = Total Sales – COGs
A business’s operating profit tells what is the contribution of the company’s operations to its profitability. The operating profit is basically the ratio of operating income and sales revenue.
The formula to calculate the Operating Profit is:
Operating profit = Gross Profit – Operating Expenses
Net profit includes all the cost amount generated by the business as revenue. It represents the actual sum of money made by any business.
The formula to calculate the Net Profit is:
Net Profit = Operating Profit – (Taxes and Interest).
Companies examine all three types of profit with the help of a profit margin. In such case, the profit, whether gross, operating, or net, is divided by the return. It exhibits how well the business uses its earnings. A large ratio means it makes a lot of profit for each revenue. A low ratio means the business’s costs are consuming into its profits. Ratios vary according to each trade.
|Profit Loss Percentage||Simple Interest|
|Compound Interest||Difference Between Simple Interest And Compound Interest|
How to Calculate Profit?
To calculate the profit gained by any business, follow the steps below:
- Determine the cost price of the products sold.
- Now calculate the total selling price of the products sold.
- Subtract the cost price and selling price, to get the profit amount.
- To calculate the profit margin, divide the profit amount with cost price.
- Multiply the profit margin with 100 to get in percentage.
Problem 1: If a shopkeeper sells Apple at Rs.200 per kg, whose cost price is Rs.150/- per kg. Then find the profit gained by the shopkeeper.
Solution: Given Cost Price = Rs.150/-
And Selling Price = Rs.200/-
From the formula of profit, we know,
Profit = Selling Price – Cost Price
P = 200 – 150
P = 50
Therefore, the shopkeeper gains Rs.50/- from the business.
Problem 2: Find the gain percentage for the above example.
Solution: By the profit percentage formula, we know,
P% = (P/CP) × 100
Since, P = 50 and CP = 150
P% = (50/150) × 100
P% = 100/3
Problem 3: Sanju sold a digital camera for Rs.5,000, on which he gains 25%. What is the cost price of the camera?
Solution: For the digital camera: Gain = 25%.
Let cost price (C.P.) = Rs.100.
Therefore, selling price (S.P.) = (100 + 25) = 125
When selling price (S.P.) is Rs.125, cost price (C.P.) is Rs.100.
Therefore, when selling price (S.P.) is Rs.5000,
cost price (C.P.) = 100/125 × 5000 = (100 × 5000)/125 = 500000/125 = 4000
Frequently Asked Questions on Profit
What is meant by profit?
The profit is defined as the amount gained by selling a product, and it should be more than the cost price of the product. In other words, the profit is a gain obtained from any business activities.
What is the formula to calculate the profit?
The formula to calculate the profit or gain is :
Profit = Selling Price (SP) – Cost Price (CP)
What is the difference between profit and loss in terms of SP and CP?
If the selling price of the product is greater than cost price, then it is considered as profit. If the selling price of the product is less than the cost price, then it is considered as loss.
Does turnover represent profit or revenue?
In business, turnover is not the same as profit. The term revenue represents the total business income obtained during a period of time. The term profit represents the gain obtained after all the expenses deducted from the business activity.
What is the formula to calculate the profit percentage?
The formula to calculate the profit percentage is:
Profit percentage = (Profit /Cost Price) x 100.