What Is the Formula for Profit?
The formula for profit is total revenue minus total expenses, resulting in net profit, according to Accounting Tools. Company finance officials review net income often to determine the viability of the company.
Net profit is realized when all operating expenses, taxes and dividends have been subtracted from the company’s total sales, Accounting Tools explains. Net profit or loss is located at the bottom of the company’s income statement.
The calculated net income may not be a reliable number, as management has the ability to modify the rules of the accrual-basis accounting to make profits appear stronger, Accounting Tools notes. This fraudulent activity may be done to satisfy the stock-price expectations of the investment community. This also may occur if management is trying to claim a bonus.
