Understanding Business Profit: Formulas and Examples

The Profit Formula

Profit = Revenue - Total Expenses

Profit represents the remaining amount after covering all business costs: purchases, salariés, rent, depreciation, taxes, and interest.

Gross Profit vs Net Profit

  • Gross profit (gross margin) = revenue - cost of goods sold. It measures production or resale efficiency.
  • Net profit = gross profit - operating expenses - taxes - interest. This is the bottom line that belongs to owners or shareholders.

Concrete Example

  • Revenue: 100,000 EUR
  • Cost of goods sold: 40,000 EUR
  • Gross profit: 60,000 EUR (60% gross margin)
  • Operating expenses: 25,000 EUR
  • Taxes and interest: 5,000 EUR
  • Net profit: 30,000 EUR (30% net margin)