what does profit tell you 
profit is the money a business pulls in after accounting for all expenses whether it s a lemonade stand or a publicly traded multinational company the primary goal of any business is to earn money therefore a business performance is based on profitability in its various forms some analysts are interested in top line profitability whereas others are interested in profitability before taxes and other expenses still others are only concerned with profitability after all expenses have been paid the three major types of profit are gross profit operating profit and net profit all of which can be found on the income statement each profit type gives analysts more information about a company s performance especially when it s compared to other competitors and time periods the word profit comes from the latin noun profectus meaning progress and the verb proficere meaning to advance gross operating and net profitthe first level of profitability is gross profit which is sales minus the cost of goods sold sales are the first line item on the income statement and the cost of goods sold cogs is generally listed just below it for example if company a has 100 000 in sales and a cogs of 60 000 it means the gross profit is 40 000 or 100 000 minus 60 000 divide gross profit by sales for the gross profit margin which is 40 or 40 000 divided by 100 000 operating profit removes operating expenses like overhead and other indirect costs as well as accounting costs like depreciation and amortization it is sometimes referred to as earnings before interest and taxes or ebit net profit furthermore removes the costs of interest and taxes paid by the business because it falls at the bottom of the income statement it is sometimes referred to as the firm s bottom line the bottom line tells a company how profitable it was during a period and how much it has available for dividends and retained earnings what s retained can be used to pay off debts fund projects or reinvest in the company 