Traditional medicine

Gross revenue and profit. What is profit in trading

Few of them ordinary people will be able to answer the question of how income differs from profit. Both concepts mean arrival cash and the possibility of their investment in the future. How these indicators relate to revenue is also a mystery for the reader who is not savvy in economic matters. However, this oversight is easy to eliminate; just understand the terminology.

What is meant by the term "revenue"

The first is the difference between revenue and accounting (that is, explicit, calculated) costs.

Taking into account the economic costs, which include the implicit costs associated with an alternative under conditions limited resources, then speech it's already going about economic profit: revenue minus economic costs.

Let's look at an example. Since the head of a passenger transportation company at one time chose the path of an entrepreneur, rather than the path of an employee with savings in a bank, he faced alternative economic costs, for example, the following:

savings in a bank account that were invested in business development - 60 tr.
lost interest on money remaining in the bank - 6 tr.
lost wages from hired work per year - 180 tr.

It turns out that the annual profit of 240 tr, which we calculated earlier, should be reduced by the amount of economic costs:

240 t.r. - (180 t.r.+60t.r.+6t.r.) = -6 t.r.

This business for an entrepreneur will not pay for itself in a year. If the company’s accountant congratulates the manager on his annual profit, the entrepreneur himself will assess the business’s performance as satisfactory.

Resume

Let’s summarize and answer the question of how income differs from profit, what is the difference between them and revenue, highlighting the main points briefly:

Revenue and income are always positive economic indicators. Profit can be positive (the company is profitable), negative (the company is unprofitable) and equal to zero (the company is at the break-even point).
Income includes profit, as well as costs for remuneration of employees of the enterprise and the social component of internal policy.
Profit is a calculated indicator. It can take into account implicit economic costs. Income can always be calculated and entered into the balance sheet.
Another difference between income and profit is the legislative connection: commercial enterprises work to achieve profit, non-profit enterprises should not receive profit at all, and municipal enterprises can be profitable, but subsidies only imply breaking even. All businesses can receive income.

Thus, revealing small terminological nuances of the profitable part of enterprises’ activities will allow readers to become more savvy in economic issues.

Hello! In this article we will talk about related, but not identical concepts: revenue, income and profit.

Today you will learn:

What is included in the company's revenue?
What is the company's income and profit derived from?
What are the main differences between these concepts?

What is revenue

Revenue – earnings from the direct activities of the company (from the sale of products or services). The concept of revenue is found exclusively in business and entrepreneurship.

Revenue characterizes the overall efficiency of the enterprise. It is revenue, not income, that is reflected in accounting.

There are several ways to account for revenue in an enterprise.

The cash method defines revenue as the actual money received by the seller for providing services or selling goods. That is, when providing an installment plan, the entrepreneur will receive proceeds only after actual payment.
Another accounting method is accrual. Revenue is recognized when the contract is signed or the buyer receives the goods, even if actual payment occurs later. However, advance payments do not count towards such revenue.

Types of revenue

Revenue in an organization is:

Gross– the total payment received for a job (or product).
Clean- used in . Indirect taxes (), duties, and so on are subtracted from gross revenue.

The total revenue of the enterprise consists of:

Revenue from core activities;
Investment proceeds (sales of securities);
Financial revenue.

What is income

The definition of the word “income” is not at all identical to the term “revenue,” as some entrepreneurs mistakenly believe.

Income - the sum of all the money earned by the enterprise through its activities. This is an increase in the economic benefit of an enterprise due to an increase in the company's capital by the receipt of assets.

A detailed interpretation of the ways of generating income and their classification are contained in the Regulations on Accounting “Income of Organizations”.

If cash revenue is funds received by the company’s budget in the course of its core activities, then income also includes other sources of funds (sale of shares, receipt of interest on a deposit, and so on).

In practice, enterprises often conduct diverse activities and, accordingly, have different channels for generating income.

Income – the overall benefit of the company, the result of its work. This is an amount that increases the organization's capital.

Sometimes income is equal in value to the organization’s net revenue, but most often companies have several types of income, and there can be only one revenue.

Income is found not only in entrepreneurship, but also in everyday life a private person not engaged in business. For example: scholarship, pension, salary.

Receiving funds outside the scope of reference entrepreneurial activity will be called income.

The main differences between revenue and income are given in the table:

Revenue	Income
Summary of main activities	The result of both the main and auxiliary species activities (sale of shares, interest on bank deposits)
Arises only as a result of conducting commercial activities	Allowed even for unemployed citizens (benefits, scholarships)
Calculated from funds received as a result of the company’s work	Equal to revenue minus expenses
Cannot be less than zero	Let's say it goes negative

What is profit

Profit is the difference between total income and total expenses (including taxes). That is, this is the same amount that in everyday life could easily be put into a piggy bank.

In an unfavorable situation, and even with a large income, the profit can be zero, or even go negative.

The main profit of the company is formed from the profit and loss received from all areas of work.

The science of economics identifies several main sources of profit:

The company's innovative work;
An entrepreneur’s skills to navigate the economic situation;
Application and capital in production;
Company monopoly in the market.

Types of profit

Profit is divided into categories:

Accounting. Used in accounting. On its basis, accounting reports are generated and taxes are calculated. To determine accounting profit, explicit, justified costs are subtracted from total revenue.
Economic (excess profit). A more objective indicator of profit, since its calculation takes into account all economic costs incurred in the work process.
Arithmetic. Gross income minus miscellaneous expenses.
Normal. Necessary income for the company. Its value depends on lost profits.
Economic. Equal to the sum of normal and economic profit. Based on it, decisions are made on the use of the profit received by the enterprise. Similar to accounting, but calculated differently.

Gross and net profit

There is also a division of profit into gross and net. In the first case, only costs associated with the work process are taken into account, in the second - all possible costs.

For example, the formula used to calculate gross profit in trade – the selling price of a product minus its cost.

Gross profit is most often determined separately for each type of activity if the company operates in several directions.

Gross profit is used when analyzing areas of work (the share of profit from which activity is greater), when the bank determines the creditworthiness of the company.

Gross profit, from which all costs (loan interest, etc.) have been subtracted, forms net profit. It is accrued to the shareholders and owners of the enterprise. And it is net profit that is reflected in and is the main indicator of business performance.

EBIT and EBITDA

Sometimes, instead of the understandable word “profit,” entrepreneurs encounter such mysterious abbreviations as EBIT or EBITDA. They are used to evaluate the performance of a business when the objects being compared operate within different countries ah or are subject to different taxes. Otherwise, these indicators are also called cleared profit.

EBIT represents earnings as they were before taxes and various interest. It was decided to highlight this indicator in separate category, since it is located somewhere between gross and net profit.

EBITDA- This is nothing more than profit without taking into account taxes, interest and depreciation. It is used exclusively to evaluate the business and its characteristics. Not used in domestic accounting. for commercial equipment.

Thus, income is funds received by an entrepreneur, which he can subsequently spend at his own discretion. Profit is the balance of funds minus all expenses.

Both income and profit can be predicted by taking into account past earnings, fixed and variable costs.

The differences between profit and revenue are as follows:

The line between the concepts may be unclear for an ordinary worker; it does not matter to him how revenue differs from profit, but for an accountant there is still a difference.

Every entrepreneur should know what the income and profit of an enterprise are, and how they differ from revenue.

Profit and income are the main financial indicators economic activity various organizations, regardless of their form of ownership. They can give an idea of the overall profitability of the enterprise.

The costs of social and production development of the company must be financed from profits. Source of funding state budget is considered corporate income tax.

What is revenue (turnover)

Revenue - money received (proceeds) by an enterprise, firm, entrepreneur from the sale of goods and services, proceeds from sales. That is all sum of money, which was obtained after the sale of the goods.

Example of revenue (turnover), Petya sold 100 phones for 10,000 rubles. Revenue will be 100*10,000 = 1,000,000 rubles.

Revenue from the sale of certain products is divided into two main types - net and gross:

Under net revenue means the amount of money after all possible deductions, taxes, discounts and the cost of the returned goods.
Gross revenue- This is the total amount of cash received after the sale of certain products or provision of services.

Income = revenue (turnover) - the cost (or purchase price) of goods or services. Taxes are also deducted from this amount. Material costs- these are funds that were spent on the purchase of products or necessary equipment. Such costs include various deductions social nature. Issue wages has nothing to do with this category.

Income example, let’s say the cost of Petya’s phones is 5,000 rubles. There are only 100 pieces, which he sold for 10,000 rubles each. Then income = 100*(10,000 - 5,000) = 500,000 rubles.

Labor costs and profits are the main components of the income of a particular enterprise. The market value of the product and the general market conditions have a direct impact on the level of income of the organization. Possible income from individuals and legal entities do not belong to the revenue side of the company.

If income is subject to tax payments, then after deducting them, an amount remains that includes the following elements:

Insurance and investment income. These are amounts received during investment activities and the cost of insurance premiums.
Consumer funds whose activities require social expenditures.

Incomes can be marginal, total and average.

Marginal Revenue- this is the difference by which the total income of the organization changes after the sale of a certain unit of goods. Demonstrates the overall return on investment of the firm.
Total income- this is the final result of the company’s economic activity, the difference between the cost of goods and production costs.
Average income received after the sale of one unit of goods. It is equal to the price of a specific product sold.

Experts also highlight the concept of other income. These include various penalties and interest for placing a deposit.

What is profit

Profit is the difference between costs and revenues, where the latter are an indicator of financial activity.

Example of profit, Petya’s income from the sale of phones amounted to 500,000 rubles. But you still need to pay taxes, pay the manager’s salary, pay rent, etc.

Maximizing profits has always been one of the main goals of a successful businessman. It is considered the most important evaluative general indicator of the activities of a particular company.

This concept includes the following main components:

Profit from the sale of property and sales material assets.
Funds that were received from additional (non-core) activities of the organization. Meaning securities, dividends, funds from renting out real estate.
The difference between the funds received from the sale of a certain product and its real value.

If it has been revealed that the enterprise’s profit is zero, the costs can be considered the result of such economic activity. The limiting indicator of this concept can be obtained by selling an additional copy of the product.

There are several main functions of enterprise profit:

Provides funds for the development of the company.
Forms taxes on the profits of commercial enterprises.
Shows the final economic result of the activities of an ordinary enterprise.

For productive profit management, experts recommend taking into account its maximum indicator, which you need to focus on. Some company managers actively practice downgrading pricing policy. But this should not be aggravated. If there is a high demand for a product, the profitability of the enterprise as a whole can drop catastrophically.

Experts advise offering your clients inexpensive analogues goods and services that are considered most in demand. Such measures will help maintain the attractiveness of products and a normal price category.

This financial indicator has several classifications. Based on the results of economic activities:

Minimum permissible and maximum possible, which happens when minimum costs and maximum profit.
Regulatory– this is standard minimum indicator provided by the enterprise.
Underreceived– a loss that occurred due to the fact that one of the parties to the transaction violated its obligations.

Profits may or may not be taxed. It is differentiated into economic and accounting depending on costs. The first is the difference between accounting profit and additional, forced expenses.

As for the second option, it is positioned as the difference between the costs incurred and the income of the enterprise.

Gross profit is the difference between the total income of a particular organization and the amount of costs. Net profit can be calculated by subtracting all associated expenses from gross profit.

About EBIT and EBITDA profit

These are two more types of profit that should be emphasized separately.

EBIT profit is positioned as an intermediate value between gross and net indicators. Some people think that this is operating profit and are mistaken. This concept may also include non-operating profit. The amount of EBIT profit can be calculated based on the amount of profit and loss before taxes. This indicator must be positive.

The value of profit directly depends on the depreciation rate and the method of its calculation.

EBITDA is the amount of earnings before interest, depreciation and amortization, and shows only cash flows. This analytical indicator is calculated based on financial statements of a particular organization and is the main indicator of how generally profitable the company’s activities are, regardless of various debts and methods of calculating depreciation.

Having determined EBITDA, you can calculate the organization's debt load. To do this, debt indicators are divided by nominal profit.

The indicated values of EBIT and EBITDA come down to one thing - “reducing to common denominator» economic indicators of organizations from different countries. The tax systems of different countries are not similar to each other. This means that income tax rates will not be equal either. The introduction of EBIT and EBITDA into accounting practice allows us to correct this situation.

Experts in the economic field have a generalized point of view on how to maximize profits for a particular company. It is necessary to equate marginal revenue with marginal cost. In this case, the profit of the enterprise should be maximum. But still, this is individual for different organizations.