Profit Formula
The profit formula is used to calculate the profit that has been made by selling a particular product. The formula for profit majorly finds application in business and financial transactions. When the selling price of any product is greater than the cost price (the price at which the product was originally bought), gain or profit is made. Profit and loss as a percentage is generally a measure to depict how much profit or loss a trader gets from any particular deal. Let's learn about the profit formula with a few solved examples in the end.
What Is the Profit Formula?
Profit Formula for a given cost price and selling price of any article can be expressed as:
Profit = Selling price - Cost price
or,
Profit = S.P. - C.P.
Note: Profit can be calculated when the selling price is greater than the cost price. For a smaller selling price, the value for profit would be negative, which means that the trader has experienced loss in the deal.
Some other important formulas related to profit are:
-
Profit Percentage Formula
\(\text{Profit Percentage} = \dfrac{\text{Profit} \times 100}{\text{C.P.}}\)
-
Gross Percentage Formula
Gross Profit = Revenue - Cost of goods sold
-
Profit Margin Formula
\(\text{Profit margin} = \dfrac{\text{Total income}}{\text{Net sales}} \times 100\)
-
Gross Profit Margin Formula
\(\text{Gross profit margin} = \dfrac{\text{Gross profit}}{\text{Net sales}} \times 100\)
where,
- C.P. = Cost Price of the article, i.e. the cost at which the article was originally bought
- S.P. = Selling Price of the article, i.e. the cost at which the article is sold
-
Example 1:
A shopkeeper buys juice cans in bulk for $25 each. He sells them for $30 each. Calculate the profit and the profit percentage.
Solution:
To find: Profit and profit percentage
Given:
Cost price of the juice can = $25
Selling price of the juice can = $30
Using Profit Formula,
Profit = $30 - $25
= $5
Using Profit Percentage Formula,
Profit Percentage = \(\dfrac{5 \times 100}{25}\) = 20%
Answer: Profit on the given purchase and sale is $5 and profit percentage is 20%.
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Example 2:
On selling a table for $840, a trader makes a profit of 5%. Calculate the cost price of the table and the profit trader makes on the sale.
Solution:
To find: Cost price of the table, Profit
Given:
The selling price of the table = $840
Profit Percentage = 5%
Using Profit Formula,
Profit = 840 - C.P.
Also, From Profit Percentage Formula,
5 = \(\dfrac{\text{Profit} \times 100}{C.P.}\)
5 \(\times\) C.P. = (840 - C.P.)100
C.P. = (840 - C.P.) 20
C.P. = 16,800 - 20 C.P.
21 C.P. = 16,800
Cost Price = $800
Therefore,
Profit = $840 - $800 = $40
Answer: The cost price of the table is $840 and the profit is $40.