defferences and similarities on profit and prfitability
Check these sites.
http://en.wikipedia.org/wiki/Profit_(economics)
http://www.extension.iastate.edu/agdm/wholefarm/html/c3-24.html
After you've studied these sites, we'll be happy to check your answer.
http://www.jiskha.com/display.cgi?id=1253641387
To understand the differences and similarities between profit and profitability, let's break down each term:
1. Profit:
Profit is a financial metric that represents the amount of money a company earns after deducting all expenses and costs from its total revenue. It is usually calculated over a specific period, such as a year, quarter, or month.
Profit = Total Revenue - Total Expenses
Profit is an absolute measure and can be positive or negative. A positive profit indicates that a company has made more money than it has spent, resulting in a surplus. Conversely, a negative profit (also known as a loss) means that a company has spent more money than it has generated in revenue.
2. Profitability:
Profitability refers to a company's ability to generate profit relative to its resources, investments, or sales. It measures the efficiency and effectiveness of a company's operations and is usually expressed as a percentage or a ratio.
Profitability = (Profit / Sales or Investment) * 100
Profitability is a relative measure and evaluates how effectively a company utilizes its resources to generate profit. It helps assess a company's financial health, efficiency, and ability to generate sustainable earnings.
Differences between profit and profitability:
1. Nature:
- Profit is an absolute monetary value, representing the surplus or deficit after deducting expenses.
- Profitability is a relative measure, indicating the company's efficiency in generating profit.
2. Calculation:
- Profit is calculated by subtracting total expenses from total revenue.
- Profitability is calculated by dividing profit by sales or investment and then multiplying by 100.
3. Focus:
- Profit focuses on the actual monetary value earned or lost.
- Profitability focuses on the efficiency and effectiveness of a company's operations.
Similarities between profit and profitability:
1. Evaluating financial performance:
Both profit and profitability help evaluate a company's financial performance and its ability to generate earnings.
2. Important for decision-making:
Both metrics are crucial for decision-making processes, such as determining pricing strategies, expanding operations, or attracting investors.
To summarize, profit represents the actual monetary surplus or loss, while profitability reflects the efficiency and effectiveness of generating profit relative to resources or sales. Both metrics play a significant role in assessing a company's financial performance and aiding decision-making processes.