Profit

• the financial gain after subtracting all its costs and expenses from total revenue:
  – cost of goods sold (COGS),
  – operating expenses,
  – taxes
  – interest on loans
• metric of how well a company manages its resources and generates value for shareholders.

Gross Profit

• subtract the direct costs involved in producing goods or services (cost of goods sold (COGS)), from the total revenue: materials, labor, and other expenses directly tied to production
• Revenue−COGS
• efficiency of producing goods or services.

Operating Profit (Income)

• deduct both COGS and operating expenses (salaries, utilities and rent) from revenue.
• Revenue−COGS−Operating Expenses
• profitability from the core operations, excluding external costs (taxes and interest).

Net Profit (Bottom Line)

• final profit figure after all expenses are deducted
• true financial gain

Profit Margin

• financial ratio
• percentage of profit from total revenue
• A high profit margin = a company is well-managed, has effective cost controls and operates in a competitive market position
• Monitoring different profit margins = identify areas where costs can be reduced or where efficiency improvements are needed

Gross Profit Margin

• percentage of revenue that exceeds the direct costs of producing goods or services
• Gross Profit Margin (%)=(Gross Profit/Revenue​)×100. Revenue: $50,000. Gross Profit: $20,000. gross profit margin is 40%, meaning that for every dollar earned in revenue, the company keeps 40 cents as profit before covering other expenses
• efficiency of using labour and materials.
• higher profit margins =
  – stronger pricing power
  – more effective cost management
  – more competitive position in the marketplace
• higher margins = well-positioning to generate sustained profits over time.

Operating Profit Margin (EBIT margin)

• percentage of revenue remaining after subtracting COGS and operating expenses
• efficiency of managing core business activities
• Operating Profit Margin(%)=(Operating Profit/Revenue)×100. Revenue: $100,000. Operating Profit: $20,000. Operating Profit Margin: 20%

Net Profit Margin

• metrics for businesses and investors (evaluate the attractiveness of a company)
• percentage of revenue that remains as profit after all expenses, taxes and interest are deducted
• primary measure of overall profitability
• Net Profit Margin % = (Net Profit/Revenue)*100
• how much profit generates every $1 of revenue.