Why it matters
Profit measures performance over a period. Ask which expenses are included before comparing profits across businesses.
A worked example
£100,000 revenue less £60,000 cost of goods sold leaves £40,000 gross profit. A further £25,000 of expenses, including interest and tax, leaves £15,000 net profit.
Illustrative example · simplified assumptionsA common mistake
Reading gross profit as profit after every expense.
Where the idea needs care
Profit is not the same as cash generated. Read the cash flow statement too.
Apply the idea
Explain this concept using a different example from your spending, work, business or a policy debate. State what stays fixed and what could change the result.
See the supporting infographic
The written explanation above is the main lesson. This image offers another way to remember it.
Sources and further study
Examples and explanations by Alibomics. Numeric illustrations are not current market quotations.