[ENTREP] CH.1.1 (pt.2) | LESSON 2 - Entrepreneurship: Revenue, Income, and Profit

Profit

is the amount of money a business receives after it accounts for the cost of goods.

Profit

Unlike income, this business metric doesn’t

account for other operational costs like

salaries or taxes. To calculate it, you may

leave out operational costs like rent,

salaries, and taxes

Profit

Revenue - Cost of Goods

Profitability

indicated by a positive bottom line, means that the company is earning more than it spends. It's a result of the company's operations and means that the company has a stable core function

Growth

is a result of corporate decisions to expand, either by hiring more employees, diversifying products or moving into new markets

Investors

typically consider both profitability and growth trends when deciding where to place their money. A company with a history of profit and an ambitious growth plan might be an ideal investment opportunity.

1. Gross Profit

2. Operating Profit

3. Net Profit

Types of profit (3)

income statement

shows a company's revenues, expenses and profitability over a period of time.

income statement

It is also sometimes called a profit-and-loss (P&L) statement or an earnings statement

income statement

It shows your: revenue from selling products or services. expenses to generate the revenue and manage your business

Gross profit

is usually the first type of profit listed on the income statement, and often the highest figure.

Gross profit

is the company's revenue minus the cost of goods sold, or COGS

Gross profit

INCLUDED:

Direct Labor

Cost of materials

Cost of ingredients

“Only include the costs that are directly tied to the production of the products.

Direct Labor

The workers who actually work with and process the different materials manually or with the aid of machines

Gross profit

EXCLUDED:

Cost of shipping

Cost of advertisement

Salary of the sales team

Debt expenses

Taxes

Gross profit

Sales revenue - cost of goods sold

Operating profit

is below gross profit on the income statement. It accounts for both the COGS and the cost of operating expenses

Operating profit

helps businesses evaluate how direct costs, like labor and machinery, and indirect costs, like building rent and utilities, detract from profit

Operating expenses

include the selling, administrative, and general expenses prior to taxes and interest expenses.

Operating profit

INCLUDED:

All the expenses that are necessary

to keep the business running must

be includedM

Operating profit

Gross profit - operating costs

Net profit

is the final profit calculation on the income statement, also known as the bottom line.

Net profit

is the remaining revenue after accounting for every business expense, including taxes and interest.

Net profit

INCLUDED:

• Debt expenses: Loan, interest, taxes

• Unusual expenses: Lawsuits

Net income

also adds the additional

income from:

• Secondary operations

• Investments

• One-time payments

Net profit

operating profit - tax and interest costs