{"id":10707,"date":"2024-01-24T11:17:12","date_gmt":"2024-01-24T16:17:12","guid":{"rendered":"https:\/\/www.sage.com\/en-ca\/blog\/?post_type=sage_glossary&#038;p=10707"},"modified":"2024-01-24T11:17:13","modified_gmt":"2024-01-24T16:17:13","slug":"calculation-of-profit","status":"publish","type":"sage_glossary","link":"https:\/\/www.sage.com\/en-ca\/blog\/glossary\/calculation-of-profit\/","title":{"rendered":"How to calculate profit\u00a0"},"content":{"rendered":"<header class=\"entry-header has-dark-background-color entry-header--has-illustration entry-header--has-illustration--generic\">\n\t<div class=\"container\">\n\t\t<div class=\"entry-header__row row align-center\">\n\t\t\t<div class=\"col col-lg-7 col-xlg-6 entry-header__content\">\n\t\t\t\t\t\t\t<div class=\"component component-single-header\">\n\t\t\t\t\t\t\t\t\t\t<div class=\"entry-header__misc text--subtitle text--uppercase text--small\">\n\t\t\t\t\t\t\t<a href=\"https:\/\/www.sage.com\/en-ca\/blog\/glossary\/\" class=\"entry-header__link\">Glossary definition<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t<div class=\"entry-title-wrapper\">\n\t\t\t\t\t<h1 class=\"entry-title\">\n\t\t\t\t\t\tHow to calculate profit\u00a0\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n\t<div class=\"single-post-details container\">\n\t\t<div class=\"col\">\n\t\t\t<span class=\"reading-time\"> min read<\/span>\n\t\t<button\n\t\t\ttype=\"button\"\n\t\t\tclass=\"social-share-button button button--icon button--secondary js-social-share-button\"\n\t\t\tdata-share-title=\"How to calculate profit\u00a0\"\n\t\t\tdata-share-url=\"https:\/\/www.sage.com\/en-ca\/blog\/glossary\/calculation-of-profit\/\"\n\t\t\tdata-share-text=\"Please read this interesting article\"\n\t\t>\n\t\t\t<span class=\"social-share-button__share-label\">Share<\/span>\n\t\t\t<span class=\"social-share-button__copy-label\" hidden>Copy Link<\/span>\n\t\t\t<span class=\"social-share-button__copy-tooltip\" aria-hidden=\"true\" hidden>Copied<\/span>\n\t\t<\/button>\n\n\t\t\t\t<\/div>\n\t<\/div>\n<\/header>\n\n\n\n<p class=\"\">Calculating profit is a vital aspect of analyzing your business finances. Knowing how much you\u2019re generating helps you make decisions, craft strategies, and manage your business effectively. It\u2019s also a key metric for understanding the financial health of your business and evaluating performance.&nbsp;<\/p>\n\n\n\n<p class=\"\">Broadly speaking, profit is the surplus of money left over from a business activity after deducting costs and expenses from revenue for a specific period.&nbsp;&nbsp;<\/p>\n\n\n\n<p class=\"\">The profit formula is:&nbsp;<\/p>\n\n\n\n<p class=\"\"><strong>Profit = Revenue \u2013 costs<\/strong>&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Revenue:<\/strong> The total income generated by your business from its primary operations, such as sales of goods or services.&nbsp;&nbsp;<\/li>\n\n\n\n<li><strong>Costs:<\/strong> All the expenses your business incurs. This includes variable costs (those that can fluctuate in value such as raw materials), and fixed costs (those that stay relatively constant, such as rent and salaries).&nbsp;<\/li>\n<\/ul>\n\n\n\n<p class=\"\">If your calculation produces a positive number, this is considered profit, and it means you\u2019re making more than you spend. If it\u2019s a negative number, it\u2019s considered a loss.&nbsp;<\/p>\n\n\n\n<p class=\"\">You can adjust this formula to calculate other types of profit.&nbsp;<\/p>\n\n\n\n<p class=\"\"><strong>Net profit calculation<\/strong>&nbsp;<\/p>\n\n\n\n<p class=\"\">The above example is a <strong>net profit<\/strong> calculation, as it includes all revenue and costs. This gives you a comprehensive view of your business\u2019 financial performance, helping you assess its long-term sustainability.&nbsp;<\/p>\n\n\n\n<p class=\"\"><strong>Gross profit calculation<\/strong>&nbsp;<\/p>\n\n\n\n<p class=\"\"><strong>Gross profit<\/strong> is a great indicator of how efficient your business\u2019 core operations are. It reveals how much money is left over when you only consider costs specific to production.&nbsp;<\/p>\n\n\n\n<p class=\"\">The gross profit formula is:&nbsp;<\/p>\n\n\n\n<p class=\"\"><strong>Gross profit = Revenue \u2013 Cost of Goods Sold (COGS)<\/strong>&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>COGS:<\/strong> Only costs tied to the production of your goods or services. These would include things like raw materials and labour, but not rent, energy bills, or your taxes.&nbsp;<\/li>\n<\/ul>\n\n\n\n<p class=\"\"><strong>Operating profit calculation<\/strong>&nbsp;<\/p>\n\n\n\n<p class=\"\"><strong>Operating profit<\/strong> is a more specific way to pinpoint your business\u2019 financial health and the efficiency of your operations. This is because it only considers expenses that are necessary to keep the business running, and not those tied to producing your goods and services.&nbsp;<\/p>\n\n\n\n<p class=\"\">The operating profit formula is:&nbsp;<\/p>\n\n\n\n<p class=\"\"><strong>Operating profit = Gross profit \u2013 operating expenses<\/strong>&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Operating expenses:<\/strong> All costs related to running your business, such as salaries, rent, utilities, and day to day expenditure. It also includes asset-related depreciation and amortization, but doesn\u2019t include things out of your business\u2019 control, like interest payments on loans and taxes.&nbsp;<\/li>\n<\/ul>\n\n\n<div class=\"single-cta\">\n\t<div class=\"single-cta__positioner\">\n\t\t<div class=\"single-cta__wrapper has-dark-background-color\">\n\t\t\t<div class=\"single-cta__content\">\n\t\t\t\t\t\t\t\t<h2 class=\"single-cta__title h3\">Subscribe to the Sage Advice Newsletter<\/h2>\n\n\t\t\t\t\t\t\t\t\t<div class=\"single-cta__description\">\n\t\t\t\t\t\t<p class=\"cta-content__title\">Get a roundup of our best business advice in your inbox every month.<\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<a\n\t\t\t\t\t\thref=\"#gate-8949a954-88b2-43bb-8b8a-77c53eb34350\"\n\t\t\t\t\t\tclass=\"single-cta__button button button--primary\"\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t>Subscribe<\/a>\n\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<img decoding=\"async\" width=\"1440\" height=\"810\" src=\"https:\/\/www.sage.com\/en-ca\/blog\/wp-content\/uploads\/sites\/12\/2022\/04\/GettyImages-1073797282-1440x810.jpg\" class=\"single-cta__image\" alt=\"\" loading=\"lazy\" srcset=\"https:\/\/www.sage.com\/en-ca\/blog\/wp-content\/uploads\/sites\/12\/2022\/04\/GettyImages-1073797282-1440x810.jpg 1440w\" sizes=\"auto, (min-width: 48em) 33vw, 100vw\" \/>\t\t\t<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Calculating profit is a vital aspect of analyzing your business finances. Knowing how much you\u2019re generating helps you make decisions, craft strategies, and manage your business effectively. It\u2019s also a key metric for understanding the financial health of your business and evaluating performance.&nbsp; Broadly speaking, profit is the surplus of money left over from a [&hellip;]<\/p>\n","protected":false},"author":1398,"featured_media":0,"template":"","meta":{"_sage_video":false,"footnotes":""},"tags":[266,169,190,202],"class_list":["post-10707","sage_glossary","type-sage_glossary","status-publish","hentry","tag-business-finances","tag-business-strategy","tag-financial-insights","tag-profit-and-loss"],"distributor_meta":false,"distributor_terms":false,"distributor_media":false,"distributor_original_site_name":"Sage Advice Canada English","distributor_original_site_url":"https:\/\/www.sage.com\/en-ca\/blog","push-errors":false,"_links":{"self":[{"href":"https:\/\/www.sage.com\/en-ca\/blog\/api\/wp\/v2\/sage_glossary\/10707","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sage.com\/en-ca\/blog\/api\/wp\/v2\/sage_glossary"}],"about":[{"href":"https:\/\/www.sage.com\/en-ca\/blog\/api\/wp\/v2\/types\/sage_glossary"}],"author":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-ca\/blog\/api\/wp\/v2\/users\/1398"}],"version-history":[{"count":0,"href":"https:\/\/www.sage.com\/en-ca\/blog\/api\/wp\/v2\/sage_glossary\/10707\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sage.com\/en-ca\/blog\/api\/wp\/v2\/media?parent=10707"}],"wp:term":[{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-ca\/blog\/api\/wp\/v2\/tags?post=10707"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}