Many terms related to business activities are often heard, including Profit.

Referring to the Big Indonesian Dictionary (KBBI), Profit is defined as Profit.

As for this one term, it will usually be a benchmark for a business regarding its profits.

Therefore, understanding the concept of Profit in business and investment will be very important.

The reason is that a good understanding of the concept of Profit will later help manage costs and ultimately increase income to achieve a more brilliant profit.

So, consider the following review to understand Profit, its types, and examples.

What is Profit?

The definition of Profit is a profit achieved in a business that, at the same time, will be directly channeled/reinvested to encourage business/business growth.

Profit can also be referred to as Profit which shows the income obtained from business activity.

In the business world, Profit is considered very important as an indicator of the success of a business.

This is because Profit is the main resource for business growth, and consistent Profit will help companies maintain financial stability.

Furthermore, Profit can also be interpreted as the difference between income and costs, including taxes.

Why is Profit Important?

Understanding why Profit is important in business activity is very important.

That’s because Profit will help entrepreneurs to run their business better.

In addition, with knowledge about Profit, entrepreneurs can make smarter decisions and maintain their business for the long term.

Here are some reasons why Profit is important in business, including:

1. Capital

Not only Profit, but Profit is also capital that can make a company able to continue to grow and maintain its business.

In this case, profits will be used for business development and achieving long-term goals.

2. Expansion

Profit is also important in the business expansion step of a business/company. The reason is the company can finance its expansion with the profits obtained.

Thus, the company’s expansion efforts will rely on something other than outside funds.

3. Long term

In the long term, Profit is also important for a company. The reason is that Profit can indicate a business’s success and growth.

Related to this, investors will certainly be more attracted to more stable companies because of their profits.

Profit Types

A good and correct understanding of the Profit types is also important.

Understanding the types of Profit, business people, and companies will be helped to analyze financial performance.

Furthermore, it will also help business people and companies to make the right decisions.

The following are the types of Profit that you need to know, including:

1. Gross Profit

Gross Profit or gross Profit is the Profit (Profit) earned by a business/company after deducting the Cost of Goods Sold (HPP)/production costs.

The HPP is a cost incurred, either directly or indirectly, to produce a product/service.

In many companies and businesses, gross Profit is the first subtotal on the income statement.

2. Operating Profit

Also referred to as Earnings Before Interest and Taxes (EBIT), operating Profit is earnings before interest and taxes.

The business activities included in the operational category are sales, marketing, advertising, salaries, employee benefits, depreciation, rent, commissions, and other costs related to business operations.

Please note in many companies and businesses, operating Profit is the second type of subtotal on the income statement.

3. Net Profits

Net Profit or net Profit is the final value after revenue is deducted from all operating expenses, including interest and taxes.

This net Profit is at the end of the income statement in a company or business.

4. Profit Margins

Finally, this list has a profit margin or profit margin. Profit margin is a ratio that measures the percentage of Profit earned from company sales.

If the profit margin is high, the company can create a larger profit from each unit of sale.

Difference between Revenue and Profit

Understanding the difference between revenue and Profit is very important in a business context.

This will later help a business or company to analyze financial performance.

Furthermore, it will also help to make the right decisions for the sustainability of a business or company.

Here are some differences between revenue and Profit that you need to know, including:

1. By definition

The basic difference between revenue and Profit can be seen in each definition.

Revenue is the funds earned from product sales throughout business activities.

However, these funds have yet to be deducted from the HPP and other costs, including employee salaries, water, electricity, building rent, and other costs to support business activities.

Meanwhile, as mentioned earlier, Profit is the net Profit from sales.

2. How to calculate

Another difference can be seen in terms of how to calculate it. In terms of revenue, the way to calculate it is to multiply the total product sold by the selling price of the product.

Meanwhile, calculating Profit is paying attention to all costs in producing the product.

3. How to maximize it

Finally, another difference between revenue and Profit can be observed in how to maximize it.

To get high revenue, the company must produce products with fast turnover.

Meanwhile, if you want to achieve high profits, the method is to sell products in the retail market with a longer expiration date.

Profit Example

Of course, understanding the examples of Profit in the business world will also be very important.

This will later enable a business/company to analyze its financial performance.

In addition, a business/company can measure its profit level and make the right business decisions.

Regarding the ways/methods of calculating business profit that you need to know, here is the formula:

Profit = Total Income — Total Expenses

An example case is as follows:

For example, a laundry service business, XYZ, wants to know the Profit that can be made from this business. The following information is known:

• Total revenue: IDR 10,000,000
• Spending amount: IDR 1,500,000

To get the total cost of expenses, the following is how you can do it:

• Direct costs, e.g., cleaning products: IDR 1,000,000
• Indirect costs, for example, banners: IDR 500,000

The calculation of the total cost of XYZ laundry business expenses is as follows:

= IDR 1,000,000 (direct costs) + IDR 500,000 (indirect costs)

= IDR 1,500,000

To find out the Profit of XYZ’s laundry business, here’s how to calculate it:

= Total Income — Total Expenses

= IDR 10,000,000 – IDR 1,500,000

= IDR 8,500,000.

Thus, the Profit that XYZ’s laundry business can earn is IDR 8,500,000.

Conclusion

In conclusion, it is very important to understand why Profit is important in business activity.

That’s because Profit will help entrepreneurs to run their business better.

In addition, with knowledge about Profit, entrepreneurs can make smarter decisions and maintain their business for the long term.

Emphasis on the need to manage costs and increase revenue to achieve healthy profits

It should also be understood that it is very important to manage costs and increase revenue to achieve healthy profits.

This must be addressed because with effective cost management and efforts to increase revenue, a business or company can realize a profit level that continues to grow.

Well, that was the complete discussion about what Profit is, from the definition and the types to examples you need to know.

Furthermore, you can also read other interesting articles, such as what interest rates and liquidity are only at INDODAX Academy.