Profits hold an exalted place in the business world and in economic theory. The necessity of producing profits imposes order and discipline on business organizations. It fosters cost-reducing innovations, which in turn promote the efficient use of scarce resources. The profit motive also encourages savings and risk-taking, two indispensable elements of economic development.
Finally, profitability is a yardstick by which businesspeople can measure their achievements and justify their claims to compensation. In view of all these essential economic functions, one might suppose that users of financial statements would have long since devised a universally agreed-on definition of profit. This is the case, however, only at the following, extremely rudimentary level:
Profit = Revenue − Costs
Defining profit in such a manner merely stirs up questions, however: What is revenue? Which costs count? Or, more precisely, which costs count now and which count later? Because these questions can be answered in many different ways, countless definitions of profit are in common use. For analysts of financial statements, the most important distinction to understand is between bona fide profits and accounting profits.
BONA FIDE PROFITS VERSUS ACCOUNTING PROFITS
In defining bona fide profits, the simple formula, revenue minus costs, represents a useful starting point. When calculating this kind of profit, the analyst must take care to consider only genuine revenues and deduct all relevant costs. A nonexhaustive list of costs includes labor, materials, occupancy, services purchased, depreciation of equipment, and taxes. No atter how meticulously the analyst carries out these computations, however, no calculation of profit can be satisfactory unless it passes a litmus test:
After a company earns a bona fide profit, its owners are wealthier than they were beforehand.
To underscore the point, there can be no bona fide profit without an increase in wealth. Bona fide profits are the only kind of profits that truly matter in financial analysis.
As for accounting profits, Generally Accepted Accounting Principles define voluminous rules for calculating them with extraordinary precision. For financial analysts, however, the practical definition of an accounting profit is simple:
An accounting profit is whatever the accounting rules say it is.
If, during a stated interval, a business adds nothing to its owners’ wealth, but the accounting rules state that it has earned a profit, that is good enough. An accounting profit that reflects no genuine increase in wealth is certainly sufficient for many investors. They cheerfully assign a price-earnings multiple to any number that a reputable accounting firm waves its magic wand over and declares to be a profit.[/url]
Fri Apr 13, 2012 5:45 am
daoduchung304 Member
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thanks you for sharing with us
Sat Apr 14, 2012 11:15 am
Destiny Full Member
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One of the best definition of profit.
From my point of view this is one of the best definition of profit and very informative too, how to make a profit. Thanks for sharing such a nice post.
Mon Apr 16, 2012 4:44 am
richa88 Full Member
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thanks for such a nice information....
Wed Apr 18, 2012 8:59 am
fastrack Member
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Business has most thing is Profit. Business has Main Part of Profit.
Thu May 17, 2012 12:05 pm
coaster Senior Advisor
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Re: What Is Profit ?!
quote:Originally posted by Prabhakar123 An accounting profit is whatever the accounting rules say it is.
A perceptive and insightful observation, useful when comparing the results of companies in different countries; because not every country uses the same accounting rules. Be aware of what the rules define as income and expenses and when each is realized.
mod's note:
PS - don't hide links under post body text; we're already very lenient with signature links; put your links where they belong, please.
~Tim~
Fri May 18, 2012 5:11 am
Alvinlorin New Member
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Re: corset
What is the minimal percentage of profit a non-profit organization has to give to charity?
Mon May 21, 2012 5:00 am
oldguy Senior Member
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quote: What is the minimal percentage of profit a non-profit organization has to give to charity?
None of the profit can be distributed as dividends or as profit, all of the revenue must go to expenses or to the stated goal of the charity - there is no stated percentages for the costs/charity split but the expenses must satisfy IRS guidelines. (a new company Vette for each worker doesn't make the cut, lol).
The organization can retain & build up a large treasury, the money does not have to be directed to their charity each year. An example would be a church group that saves money for a few years in anticipation of building a new church building.
What does the University of Southern California look for in new students?
Mon Aug 27, 2012 5:56 am
elricgoldsmith Member
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Well,You got it going good,I do hope that you keep it up.Thank you for posting your inspiring story.
Thu Aug 30, 2012 9:27 am
Julia Craig New Member
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Re: corset
quote:Originally posted by Alvinlorin What is the minimal percentage of profit a non-profit organization has to give to charity?
It's wonderful that you are charitably minded. There is no set amount that is standard.
How much to give is a very personal decision. Give as you feel comfortable and can afford to. IMO, you should start with 1.5% doesn't seem much to me, but it is a start.
Thanks
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Tue Sep 25, 2012 6:47 am
Donalddric New Member
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A financial gain, esp. the difference between the amount earned and the amount spent in buying, operating, or producing something.
