In simple terms, profit can be defined as a positive return obtained from an investment. This is usually the difference between the sale price of the retailer and the manufacturing cost of the manufacturer. However, there expenses like charges involved in delivering the goods the retailer’s premises. Almost all organizations in the world function with profit as the primary goal. This style of functioning is considered to be capitalistic.
However, there are certain organizations called not-for-profit organizations that serve social, environmental and humanitarian causes. Accounting profit is defined as the product of the difference between the selling and manufacturing costs multiplied by the number if items sold. When other costs such as opportunity costs are subtracted from this figure, the reaming amount is known as economic profit. The total profit made by a company before deducting taxes is known as gross profit.
The difference between the amount of profit made and the operating expenses and depreciation from gross income yields the operating profit, which is otherwise known as recurring profit. It does not include interest and tax deductions. Profit margin is expresses as a percentage of the total turnover generated by a company. This is a parameter used to measure the profitability of a company (“Profit Margin”). An organization can start earning profits only after over coming the initial investments made in starting up the business.
The point at which this figure is achieved is known as break-even point. Some companies even share their profits made with their employees. It motivates employees to contribute more effectively since their efforts would be rewarded directly. This practice of distributing profits among the employees through incentives plans is known as profit sharing. However, the profits are issued as shares to employees publicly listed companies.