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Transcript of Profit
Earnings Before Taxes (EBT)/ Net Profit Before Tax equals sales revenue minus cost of goods sold and all expenses except for taxes.
Earnings After Tax/ Net Profit After Tax equal sales revenue after deducting all expenses, including taxes (unless some distinction about the treatment of extraordinary expenses is made).
In accounting, profit is the difference between the purchase and the component costs of delivered goods and/or services and any operating or other expenses.
There are several important profit measures in common use. Note that the words earnings, profit and income are used as substitutes in some of these terms (also depending on US or UK usage), thus inflating the number of profit measures.
Gross profit equals sales revenue minus cost of goods sold (COGS), thus removing only the part of expenses that can be traced directly to the production or purchase of the goods.
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) equals sales revenue minus cost of goods sold and all expenses except for interest, amortization, depreciation and taxes.
Earnings Before Interest and Taxes (EBIT)/ Operating profit equals sales revenue minus cost of goods sold and all expenses except for interest and taxes.
Economic Profit vs Accounting Profit
To accountants, Economic Profit, or EP, is a single-period metric to determine the value created by a company in one period—usually a year.
It is Earnings After Tax less the Equity Charge, a risk-weighted cost of capital. This is almost identical to the economists' definition of economic profit.
Optimum Profit is a theoretical measure and denotes the "right" level of profit a business can achieve.
In the business, this figure takes account of marketing strategy, market position, and other methods of increasing returns above the competitive rate.
Accounting profits should include economic profits, which are also called economic rents.
For instance, a monopoly can have very high economic profits, and those profits might include a rent on some natural resource that a firm owns, whereby that resource cannot be easily duplicated by other firms.
In neoclassical microeconomic theory, the term profit has two related but distinct meanings.
Economic profit is similar to accounting profit but smaller because it reflects the total opportunity costs (both explicit and implicit) of a venture to an investor
Normal profit refers to a situation in which the economic profit is zero.
A related concept, sometimes considered synonymous to profit in certain contexts, is that of economic rent.