Profit, in financial accounting, is the income paid to the proprietor by a profitable industry production process. Profit, also called net profit, is simply a measure of profitability that is the proprietor’s main interest in the financial profit-formation process. There are many profit factors in common usage.
Net profit is the value of the total income of the enterprise after all expenses are deducted, less any net profits earned. The term net profit is often used interchangeably with total income. This is not to say that the enterprise would have made no profit had all expenses not been taken into account. A firm may have made a substantial loss if it had not incurred such things as marketing and advertising expenses and property costs. All of these can be taken into account to show that the firm would have made a considerable gain even without any other factor.
The profit margin is the percentage of profit that a firm has earned after subtracting the cost of goods sold. A firm can have a high profit margin, but a low profit margin if it sells goods at prices below the selling price. In a very large firm, there may be a very small profit margin at all. A firm does not have to sell its goods at a specific price. It can decide to sell at a price at which it makes most of its profit, but at a lower price than would be sold at in a smaller firm.
To determine the profit margin, the price that is used for a given commodity or service should be multiplied by the profit margin. A firm should take into account the volume of merchandise to be produced and the degree of competition and the expected sales price for that volume to find out the profit margin.
Profit is also calculated by examining the stock market values of corporations before they go public. If the company’s stock is valued at more than what it is worth in terms of its liabilities and assets, the profit is higher.
The profit margin per share are calculated differently. If the profit is less than the cost of the stock, there will be a profit margin, and a profit per share, which is equal to profit divided by the outstanding stock outstanding. There is a special formula for computing the profit per share. profit per share, but it involves the use of the value of the outstanding stock and discount rates.
There is also a standard profit per share formula, which includes a discounted value of the cash-value of the company’s assets divided by the value of its liabilities. The profit per share is calculated by dividing the discounted value by the outstanding stock price. In this formula, the denominator of the fractional part is the price per share and the numerator is the value of the asset. The denominator can include the fair market value of the stock, or the book value. The denominator is multiplied by the number of shares outstanding to arrive at the profit per share.
Profit per share is usually the same as net profit per share, because both calculate profit by dividing the profit per share by the outstanding stock value. Net profit is calculated by taking the denominator plus the discounted value and dividing it by the denominator. The profit per share is then divided by the outstanding stock value to arrive at the profit per share. Profit per share can include either or both of these values to arrive at the same result.
Profit per share can also include any one of the following variables: costs of production divided by net production, fixed costs of production divided by net production, operating costs divided by production costs, and total expenses divided by production costs. All these costs are measured at the point of production to determine the net production cost, the cost of goods sold, fixed costs of production and operating costs.
The factors included in the above formulas have to be taken into consideration before calculating the profit per share. The total expenses incurred during the production process have to be measured.
Net production equals net profit divided by stock market value, and profit per share equals profit divided by outstanding stock market value. Stock market value is determined by a discounted value over a period of time. Discounted value is a measure of the present worth of the stock or commodity, and is calculated by dividing the stock price by the average price per share or dollar. for the number of shares outstanding.