What are revenue, profit and income: how they differ and what they are formed from. Profit What is profit?

Profit as a qualitative indicator of the efficiency of an enterprise characterizes the rational use of means of production, financial, labor and resources. An enterprise that does not make a profit in a market economy will deplete resources and go bankrupt.

The goal of any enterprise is profit. Profit is a qualitative indicator of the efficiency of an enterprise, which characterizes the rationality of the enterprise’s use of means of production, as well as financial, labor, and material resources.

An enterprise can make a profit only by producing goods or services that are in demand and satisfy the needs of society. Moreover, the price of these goods and services will play a significant role - it must correspond to the solvency of consumers.

As for the enterprise itself, price formation for it is carried out taking into account costs. An acceptable price for an enterprise's products is possible only if the enterprise does not exceed a certain level of costs. As a result, the amount of resources consumed and costs must be less than the revenue received. This will mean that the company is operating at a profit.

If an enterprise operates without making a profit, then, in a market economy, it will exhaust its resources and leave the production sector, becoming bankrupt.

Profit reflects the net income of the enterprise and performs the following functions:

characterizes the economic effect of the enterprise's activities. If an enterprise makes a profit, this means that all production costs are covered by income;
has a stimulating function, as it is the basis for further expansion of production, its improvement, as well as for increasing wages of workers and paying dividends to owners and shareholders;
is a source of replenishment of budgets at various levels, forming financial resources not only of the enterprise itself, but also of the state as a whole.

Maximum profit and its sustainable growth are the most important conditions for the prosperity of not only a specific enterprise, but also the national economy as a whole. By making a profit, an enterprise can increase its scale and strengthen its position in the market. As a rule, this process is accompanied by renewal and improvement of the enterprise itself. This is the overall goal of entrepreneurship.

In the economic sense, profit is calculated as the difference between cash receipts and payments, in the economic sense - as the difference between the property status of the enterprise in question at the end and beginning of the accounting period. Since there is a difference between the economic and accounting approaches to enterprise costs, a distinction is made between economic and accounting profit.

Accounting profit is equal to the total income of the enterprise minus accounting (explicit) costs;
Economic profit is equal to total income minus economic (explicit + implicit costs),
Economic profit equals accounting profit minus implicit costs.

There are different types of profit:

Gross profit is the amount of profit (loss) of an enterprise from the sale of all types of enterprise products (services, works, property), as well as income from non-sales operations (minus the amount of expenses for them). Gross profit is an indicator of production efficiency.
Profit (loss) from sales of products is equal to revenue from sales (excluding VAT and excise taxes, as well as indirect taxes and fees) minus production and sales costs (included in the cost of these products). If, under conditions of stable wholesale prices, the profit of an enterprise increases, this indicates a decrease in the total individual costs of the enterprise for the production of products and their sale. Profit from sales is an indicator of the main activity of the enterprise, i.e. activities for the production and sale of their products.
Profit before tax (or balance sheet, accounting profit) – reflected in the balance sheet of the enterprise, is the final financial result of the enterprise’s activities; is identified through accounting of all its business transactions and evaluation of balance sheet items. Accounting profit is an indicator of the efficiency of all economic activities of an enterprise.
Taxable profit - calculated during tax accounting within the framework of current legislation, is the basis for determining the taxable base.
Net profit (loss) for the reporting period (or profit for distribution) is that part of the profit that remains with the enterprise after paying all taxes and obligations and is used for the needs of the enterprise (production development, social needs, etc.).

In addition to those listed, many other types of profit are used in the scientific economic literature. Specialists pay great attention to profit analysis, that is, analysis of the financial results of an enterprise’s economic activities, using various approaches and degrees of detail.

Financial performance indicators clearly demonstrate the effectiveness of the enterprise in absolute terms, which is important not only for the enterprise itself, but also for persons interested in its activities. For example, this analysis will help the management of an enterprise to identify prospects for the further development of the enterprise, since the most important source of financing for these purposes is profit.

The main tasks of profit analysis:

justification of the planned profit in accordance with the volume and cost of products sold;
profit assessment in accordance with the business plan;
calculation of the influence of various factors on the deviation of the actual profit from the planned one;
identifying reserves for profit growth and ways to use them.

Analysis of financial results is carried out in several directions:

horizontal analysis consists of studying changes in the values of indicators over the analyzed period;
vertical analysis is an analysis of the structure of profit indicators, as well as their structural dynamics;
factor analysis consists of identifying factors and sources of profit growth and their quantitative assessment;
assessment of profitability indicators over time.

To carry out profit analysis, the following sources are used: the balance sheet of the enterprise, the profit and loss statement, the accounting register and the financial plan of the enterprise.

It is important for an enterprise to analyze the “quality” of profit, that is, the structure of the sources of its formation.

High “quality” of profit means an increase in production volumes while simultaneously reducing its cost. With a low “quality” of profit, there is no growth in the volume of manufactured products; at the same time, there is an increase in selling prices for these products.

In order to improve the “quality” of profits, an enterprise must strive to reduce the cost of its products. Thus, the “quality” of profit characterizes the efficiency of the enterprise’s use of existing reserves. The most important aspect of profit analysis is the determination of the break-even, or critical, volume of production and sales of products. The volume will be break-even if the total cost of the products produced is equal to the revenue from its sales. In this case, the company receives neither loss nor profit from the sale of products.

This situation is also called the profitability threshold or break-even point (critical point). To achieve the profitability threshold, it is necessary to produce and sell such a volume of products in order to cover the variable and fixed costs of the enterprise using the amount of sales revenue.

To make a profit, it is necessary to increase production and sales. If this volume is less than critical, the company will suffer a loss. Only on the basis of profit analysis can you make the right management decisions, develop business plans, etc. This is true for any enterprise, regardless of its size, type and scale of activity, as well as its form of ownership.

This article is devoted to deciphering concepts that seem to be synonyms. We will talk about profit, revenue and their types.

Definition and calculation formula

Profit It is customary to call the difference between revenue from the sale of goods/services and the costs of their production/provision.

Profit is an important economic indicator that serves to reflect the effectiveness of business activities.

Profit and revenue are not the same thing. The formula for calculating profit is very simple:

Revenue – Expenses = Profit

Net profit

Net profit is the money that remains with the company after various deductions, taxes and other payments are subtracted from the balance sheet profit. Net profit is a source of financing production processes. It also forms reserve funds, and it is through it that working capital increases.

The main factors influencing the amount of net profit are:

the amount of tax and other payments;
company income from the sale of goods/services;
cost price.

How to calculate net profit

The volume of net profit is calculated in several stages.

1. The first step is to calculate how much money was spent on the production of the product (the cost of the material is also taken into account).
2. Then the calculation should be made. Gross income is the result of subtracting production costs from revenue (i.e., funds received by the enterprise as a result of the sale of goods).
3. This is enough to find out the amount of net profit:
To calculate net profit, you need to subtract mandatory deductions (taxes, etc.) from gross income.

Gross profit

To calculate gross profit, you need to subtract the cost of the product from the amount received by the company as a result of its sale.

How, then, does gross profit differ from net profit? And the fact that all tax and other deductions are “included” in the gross.

To correctly calculate gross profit, it is necessary to accurately calculate the amount of expenses, including.

Cost price- These are the company's costs for producing goods.

Factors affecting profit

Factors influencing the volume of gross profit are divided into two groups: internal and external. Internal ones depend on the management of the enterprise. Here they are:

trading performance;
improving the quality characteristics of the product;
increase in production volume;
reduction of production costs;
rational (most efficient) use of production capacity;
work to expand the range;
effective advertising campaign.

As for external factors, management cannot influence them. Let's list them:

location of the enterprise;
environmental situation in the region;
natural features;
government support for business;
political situation in the country and the world;
features of the economy (country and world);
provision of transport and necessary resources.

What is the revenue?

Revenue is what a company receives as a result of the sale of goods or the provision of services. It is no wonder that any company strives to generate revenue. Revenue and profit, as already mentioned, are not identical concepts, because profit is the difference between revenue and expenses.

Sources of revenue may vary. The following types of revenue are distinguished (based on its source):

1. Revenue from the sale of a product or service. It includes all funds received by the enterprise as a result of the sale of its products within a certain period.
2. Investment proceeds.
3. Revenue received as a result of financial transactions.

total revenues is the sum of funds received from all these sources.

About Gross Revenue

Gross revenue is the total income received by a company as a result of the sale of goods, as well as other transactions not related to sales. However, the main component of gross revenue is sales revenue. The following formula is used to determine gross revenue:

ВВ = Quantity of goods * Unit price of goods

Since gross revenue does not take into account production costs, it cannot be considered the main indicator of enterprise performance. But when it comes to comprehensive performance assessment, gross revenue is also taken into account.

To summarize, let's look at the formula again. So:

Profit = Revenue – Expenses

From this formula it is clear that profit and revenue are not synonyms. When calculating profit, all expenses of the enterprise are taken into account, and not just the cost of goods. In addition, the profit can be negative.

Profit call the difference between the income from an activity and the costs of this activity.

This is the general interpretation of the concept. However, in the process of further consideration, there is no unanimity of opinion either in theory or in practice.

Types of profit and methods of their calculation

We can say that most of the trends in economic science one way or another consider the mechanisms of formation and distribution of profit, without giving unambiguous practical recipes for the most successful method of activity.

Probably the only thing that supporters of all economic theories agree on is the way to calculate income, expenses and profits in monetary units and the recognition of the fact that any economic activity for which the costs, in general, exceed the income from it does not make economic sense.

According to some theories, profit is possible only as a result of market imbalance due to improved external conditions or useful innovation (more efficient production methods, lower costs, etc.). In all other cases, competition brings the market to a state of equilibrium with zero profitability. What remains with the owners of enterprises after paying all expenses is proposed to be considered the income of the entrepreneur, something like the salary of an executive based on the results of work. Some theories consider profit to be the price paid for entrepreneurial risk, personal efficiency, and the use of capital. Obviously, for a practical understanding of the issue, it is not necessary to go deeply into economic theory, it is enough to know and understand some common definitions

It is customary to distinguish the following types of profit:

Accounting profit (BP)- this is a precisely defined amount between cash receipts (D), which, according to accounting rules, are considered income from activities, and costs, which, according to the same rules, should be considered expenses (R),

BP = D - R;

Economic profit (EP)- a less clear indicator, based, to a large extent, not only on accounting data, but also on expert assessments. Such estimates may include: expenses not accounted for in accounting, the cost of possible risks and additional opportunities, lost profits, otherwise economic costs (EI), i.e. expected result from using funds in some other way

EP= D - EI;

Gross (total) profit (GP)- amount of income (revenue from the operation) (D) minus expenses (R), i.e. the cost of this operation. Calculated using the same method as accounting profit;
Operating profit (OP) - the indicator is similar to the one given above, however, from it it is customary to subtract not only the cost of a specific action, but also operating costs (OI), i.e. some operating expenses for core activities

OP = D - R - OI;

Net profit (NP)- the remainder of the income after paying all expenses (∑Р), including taxes and deductions from profits,

PP = D - ∑R.

In addition to assessing efficiency and accounting for funds, the methodology for determining the amount of profit becomes necessary for the correct calculation of taxes. In Belarus, this aspect of accounting is regulated by the Tax Code of the Republic of Belarus and other legislative acts.

Enterprise profit

For a commercial organization, profit is a mandatory goal of activity. To a certain extent, this is also true for state-owned enterprises, although their tasks may differ in many ways, the profit received is also recorded in accounting and distributed according to the statutory documents. In addition, economic activities are often carried out by public, charitable, and religious organizations, but all their income must be spent on non-commercial purposes in accordance with the law and internal rules. In this case, we can only talk about accounting profit.

For an enterprise, the planned profit is important as a guideline for drawing up interim plans: supply, production, warehousing, transportation, sales, etc. At the next stage of the economic cycle, the actual profit received must be distributed in accordance with the goals of the enterprise and the prevailing conditions.

To check the effectiveness of business management, it is useful to compare the planned profit with the received one. To better understand and optimize the system of economic processes within and, to some extent, in the external environment of the organization, special methods are used, in particular factor analysis. Its purpose is to assess the influence of each of the factors of the economic system on the amount of final profit. This is convenient to do when comparing items of the same name profit and loss statement (OPL) in the past and base periods. This method cannot promise absolute accuracy of results, because It can be difficult to isolate the degree of influence of each factor separately.

Profit functions

All ways to use profit can be grouped into two general categories: consumption and. If consumption means the withdrawal of funds from the enterprise, then investment involves the further development of the economic system.

It is easy to verify that it is profit that provides the source of funds for further development by considering the opposite situation: if in a periodically repeating economic process all the goods produced (revenue) are spent to compensate for the costs incurred, then the system does not have free resources for development and is reduced to the repetition of one and the same cycle. Under favorable, stable conditions, this cycle can be repeated for quite a long time. However, changing these conditions will sooner or later require funds to rebuild the system, which an enterprise operating without profit cannot provide. This usually leads to either closure, downsizing, or a change in ownership of the organization.

All common methods of obtaining funds for the development of an enterprise can be presented in the form of several general directions:

Financing from your own accumulated profits is the safest and cheapest option. If it fails, the organization only risks the value of its investment;
Involvement of external, for example -. In this case, you need to prepare for a return from future profits of both the funds received and the loan fee. Attracting financing through the sale of a share in the ownership of an enterprise does not change the essence, either investments are paid off by an increase in net income, or we should talk not about development, but about losses;
Sale of part of your own property. Loss of property involves loss of income from the use of the property sold. It is possible to compensate for a drop in income only by increasing overall profits.

In this way, they ensure the attraction of funds for the development of a private organization. Modernization of state-owned enterprises, including with a “socialist” approach to financing, ultimately also comes down to obtaining additional profit, only the scope of the project expands in accordance with the scale of the owner. In this case, it is possible to compensate for the costs both from the income growth of the modernized enterprise and the economy as a whole. However, investing without income growth exceeding expenses is also considered economically senseless.

In addition to investing the profits within the organization, external investment may be beneficial. In this case, funds withdrawn from one enterprise are invested in another. This can be a source of additional benefit for the owner of the funds, the recipient of investments and the economy as a whole, due to the redistribution of funds to the most profitable projects.

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The profit of an enterprise includes the increase in the initially advanced cost in the production and economic activities of the enterprise to ensure its activities. Profit can be defined and measured by the ratio of income and expenses of an enterprise.

Profit can serve as a source for improving production processes and their expansion, as a source for increasing wages, and issuing bonuses. With the help of profits, the size of dividends received by shareholders and owners increases. Profit is the most accurate characteristic of an enterprise's activities.

Profit can come in various forms. Profit is classified according to the sources of formation, according to the calculation method, according to the nature of taxation, according to the nature of use and according to the value of the final result of management.

In accordance with the calculation method, gross, net and marginal profit are distinguished. Gross profit is the net return on capital expressed in monetary terms. This profit represents revenue from sales of products and the cost of these sales, excluding semi-fixed management and distribution costs. Net income includes the profit that remains after subtracting all expenses from the total income of the business.

Marginal profit includes the excess of revenue over variable production costs.

Gross and operating profit

Gross profit is the difference between the cost of products and the net income received in the sales process. The cost can include not only production costs, but also property taxes, land payments, other payments, excise duty, tax on vehicle owners, etc.

Therefore, when considering different types of profit, it is necessary to understand that gross profit is always reduced by the amount of all payments and fees.

Operating income is derived from the activities of the enterprise, with the exception of revenue, which is initially included in the balance sheet profit. Operating profit includes the following types of income: income from exchange rate differences, rental of property, placement of assets that were written off earlier, income received due to the sale of current assets, with the exception of financial investments.

Net profit of the enterprise

Net profit is available to the enterprise only after income tax is paid. This profit is most often used in two directions: a consumption fund and an accumulation fund.

PR = Revenue – Cost – UKR – PR – N

Here RCM is administrative and commercial expenses,

N – taxes,

PR - other expenses.

PP = FP + VP + OP – N

Here FP is the amount of financial profit,

VP – the amount of gross profit,

OP – the amount of operating profit,

PE = PDN – N

Here PDN is the amount of profit before tax

Other types of profit

If we consider the nature of inflationary cleaning of profits, we distinguish between nominal and real profits. Nominal profit is indicated in the financial statements and corresponds to book profit.

Real profit is nominal profit, which is adjusted for inflation. In order to determine real profit, nominal profit is correlated with the consumer price index.

In accordance with the sources of formation, profit can be balance sheet, from the sale of products, or from other operations. In accordance with the nature of taxation, profits are divided into taxable and non-taxable profits.

According to the final result, profit can be normal, negative or positive. Depending on the nature of use, profits can be distributed or capitalized.