Before answering “what is the role of profit in business” you need to understand 3 three financial accounting terms
1. Profit
Profit is simply defined as money received from sales minus expenses incurred in producing that item. This means that if you sell something at $100 and spend only $50 to make it, then your profit would be $50.
2. Loss
Loss is defined as money lost due to selling an item below your cost. If you sell something at $60 and spent $40 to produce it, your loss would be $20.
3. Margin
Margin is the difference between what you paid and the price you sold it for. In our example above, we had a margin of $30 (60 – 40 30).
Profitability
Profitability is the term for revenue from capital expenditures. Every company needs to turn a profit, which is crucial for both survival and expansion. Every firm strives to achieve greater success than it has in the past.
Profit is the difference between revenue and costs, after investment. For a firm to thrive and expand, there are many key factors. It is crucial as a source of income for business owners and the expansion of the company
So top key benefits of profit are
(i) It’s and income source for the business owners and can help paying salaries to employees.
(ii) Profit helps in new investments and expansions.
(iii) It indicates the business is working well.
(iv) It can be taken as a need from the society.
(v) It creates brand awareness of business.
So for the question to
What is the role of profit in business?
To make the business survive and expand with time. Profit today can help survival in bad phases of business as well.
Table of Contents
