Profit Formula

How can anyone be certain that whether he is making the best financial decision? In our daily life, we are doing many transactions and purchasing. So we are in need always to earn the profit. This term represents the difference between the selling price and cost price. Every businessman has to compute this value to grow in their business. In this article, we will learn about the meaning of profit and profit formula. Let us learn the interesting topic.

Profit Formula

What is profit?

Profit is also called the net income and is the amount of earnings that exceed expenses for the period. In other words, it is the amount of income left over after doing all the necessary and matched expenses are subtracted for the period. It is the profit which motivates a businessman to undertake business.

In a market economy, this profit motive works as an incentive in allocating resources in the production products. It is in accordance with the needs and tastes of the buyer. If a businessman fails to move in the direction as shown by the buyers, his chance of getting higher profit reduces.

The profit formula is used to know about the profit has been made by selling a particular product. Formula for profit is mainly used for business and financial transactions. It is a fact that profit arises when the selling price of any product sold is greater than the cost price.

The cost price is the price at which the product was originally bought. Also, the loss will arise when the cost price is greater than the selling price of the product.

In day-to-day transactions, it should be noted that the profit and loss both are generally represented as a percentage. It is used to depict how much profit or loss a trader gets from a particular deal.

Some Profit Formula:

Now, we will depict the formula which is very simple and straight forward but used very extensively.

Profit = S.P. – C.P.

Where,

S.P.	Selling Price
C.P.	Cost Price

Profit Percentage = \(\frac{Profit × 100}{C.P.}\)

Sometimes, we need to compute gross profit. Revenue is the total result of the transaction.

Gross Profit = Revenue – Cost of product Sold

S.P. = Selling Price i.e. the cost at which the product is sold

C.P. = Cost price i.e. the cost at which the product is originally bought

Solved Examples

Q. A shopkeeper buys some watches for ₹ 20 each. Then he sells them for ₹ 45 each. Calculate the profit and the profit percentage?

Solution:

In this question given facts are:

The selling price of the watch = ₹45

The cost price of the watch = ₹20

Now, Profit = Selling Price – Cost Price

So, the profit of one watch

= 45 – 20

=  ₹25

As we know the formula for profit percentage as:

Profit Percentage = \(\frac{Profit ×100}{C.P.}\)

So, The profit percentage of the shopkeeper is,

= \(\frac{25}{20} × 100\)

= 1.25 × 100

= 125%.

Q. A man buys an article for ₹ 27.50 and sells it for ₹28.50. Find his profit and profit percentage.

Solution:

Given values are:

Cost Price C.P. = ₹ 27.50,

Selling Price S.P. = ₹ 28.50

His gain= ₹ 28.50 –27.50

= ₹ 1.10

Thus profit percentage

=\(\frac{1.10}{27.50} × 100\)

= 4%