A company’s net income is the amount of money earned by a business after subtracting its expenses. Essentially, profit is the portion of income that exceeds expenses. To determine profit, expenses must be recognized in the period during which the revenues were generated. After calculating COGS, subtract the costs of goods sold (COGS) from the sales. In the above example, Company G sells sunglasses for a $100 price. To calculate profit, subtract COGS from sales, which is $60,000, or 40% of the total revenue.
To make a profit, a business must have a positive cash flow. The goal of every business is to make money and return it to its owners. It is important to know what profit is, because profit is one of the most critical measurements of a business’s health. Profit is also known as the bottom line, and varies widely between different types of businesses, sizes, and industries. It is usually expressed as a percentage of sales.