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Profit is basically the net income and is also the number of earnings that exceeded expenses for the tenure of time. Simply to say, profit is the amount of income that is in surplus after performing all the requisite and matched expenses deducted for the period. It is only the amount of profit that encourages an individual, specifically a businessman to undertake a business.

Profit or Gain Formula = Selling Price (S.P) â€“ Cost Price (C.P)

Loss Formula = Cost Price (C.P) â€“ Selling Price (S.P)

One of the most significant mathematical formulas, profit and loss formulas are used to calculate not only many maths problems but are quite crucial in our daily life. These formulas are greatly applicable in small and large businesses, retails, corporate sectors and those linked with finance besides the calculations involved at an academic level.

In retails, profit and loss formulas are used to identify the price of a product/service in the market. Every commodity in the market comes with a cost price and a selling price. With the help of these allocated price values, we are able to calculate the profit gained and also the loss of money in a specific product/service. For any seller or trader, if the value of the cost price is less than the selling price of a commodity, then itâ€™s a profit but if the value of the selling price is less than the cost price, then itâ€™s a loss for him.

For the purpose of calculating the operating margin, we need to divide operating income (earnings) by sales (revenues). Operating margin is basically a profitability ratio which depicts the amount of profit that a company/seller makes from its core operations with respect to the total revenues it brings in. That said the formula to calculate operating profit margin is as follows:

Operating Profit Margin Formula = Operating Income (earnings) Ã· sales (Revenue).

It is actually the difference between total revenue earned from selling a commodity and the total cost of goods/services sold.

Gross Profit (GP) = Net Sales â€“ COGS (Cost of Goods Sold)

Operating Profit = Gross Profit (GP) â€“ Operating Expenses.

Loss is the amount that a seller incurs when the selling price is lesser than the cost price. This difference in the amount is actually the loss incurred for the period. Note that selling price is the price at which an article or a service is sold.

Example: A student bought a bag for Rs. 350 and later sold for Rs. 400. Find the profit percentage he earned.

Solution:Â

Profit = SP â€“ CP

= 400 â€“ 350 = 50.

Gain% = (50/350) Ã— 100

= 100/7%

Example: A man sold a painting for Rs. 525. Find the cost price if he incurred a loss of 9%.

Solution:

CP = [100 / (100 â€“ Loss %)] Ã— SP

Thus, the cost price of the painting= (100/91)*525

= Rs. 576.90

Example: In a transaction, a seller incurred the profit percentage of 70% of the cost. If the cost is further increased by 10% however the selling price remains the same, calculate the reduction in profit percentage?

Solution:

Suppose that Cost Price (CP) = Rs. 100.

Then Profit = Rs. 70 and SP = Rs. 170.

The cost increases by 10% â†’ New CP = Rs. 110, SP = Rs. 170.

Profit % = 60/110 * 100 = 55.54%.

Hence, Profit decreases by 45.45%.

Example:

If profit% of M and N are the same on selling the articles at 2400 each, but A calculates his profit on s.p. while B calculates it on c.p. This profit is equal to 25% each. What is the difference between their profit?

Solution:

Let the Cost price of M and N are m, n respectively.

Now for M,

2400-m/2400 = 25/100

After calculating m = 1800

Again for N,

2400-n/n = 25/100

After calculation â€˜nâ€™ = 1920

So the profit of M = 600(2400 â€“ 1800)

And Profit of N = 480(2400-1920)

Hence the difference between their profit = 120

Remember that both Profit and Loss is always calculated on the CP (cost price).

Marked price is the price marked as the selling price (SP) on a commodity, which is also known as the listed price.

Discount or Rebate is actually the reduction in price offered by the seller on the listed price.

FAQ (Frequently Asked Questions)

Q1. Why is Earning Profit Significant to us?

Answer: Under the market economy, this profit encourages works as an incentive in assigning resources in the production products. It is basically in compliance with the needs and preferences of the consumer. If a trader fails to work in a way as desired by the consumers, their possibility of earning higher profit decreases significantly.

Q2. What is the Use of a Profit Formula?

Answer: The profit formula is used to determine the profit that has been made by selling a specific product. The formula for profit is basically applied for business and financial transactions. It is a fact that profit comes about when the selling price of any product sold is higher than the cost price.

In day-to-day transactions, profit and loss both are usually represented as a percentage. It is used to portray how much profit or loss a businessman gets from a specific deal.

Q3. What do we Understand by Cost Price?

Answer: The cost price (CP) is the price at which a commodity was originally purchased. Moreover, the loss will accrue if the cost price is greater than the selling price of a commodity.