Profit and loss formula

The profit and Loss formula is used to determine the price of a commodity in the market and understand how profitable a business is. Every product has a cost price and a selling price. Based on the values of these prices, we can calculate the profit gained or the loss incurred for a particular product. Profit and loss are the terms used to identify whether a deal is profitable or not. We use these terms very often in our daily lives. If the selling price(S.P) is greater than the cost price(C.P), then the difference between the selling price and cost price is called profit. If the selling price is less than the cost price, then the difference between the cost price and the selling price is called a loss. The price at which a product is purchased is called its cost price. The price at which a product is sold is called its selling price.

The important terms covered here are cost price, fixed, variable and semi-variable cost, selling price, marked price, list price, margin, etc. 

When a person buys an article for a certain price and then sells it for a different price, he makes a profit or incurs a loss. Various terms are associated with the entire process of making a transaction. For example, the cost price of the article (C.P.), selling price (S.P.), discount, marked price, profit, and loss. Let us understand the meaning of these terms one by one.

Profit(P)

The profit or gain is equal to the selling price minus the cost price. Loss is equal to the cost price minus the selling price.

Formula 

Profit percentage = (Profit/Cost Price) × 100.

Loss(L)

 Loss for a company's business if the cost price of a product is more than the selling price, but a profit may be made if the cost price of the product is lower than the price at which it is being sold.

Formula 

Loss percentage= Loss/CP x 100.

Cost Price (CP)

The amount paid for a product or commodity purchase is called a cost price.

Fixed Cost: The fixed cost is constant, it doesn’t vary under any circumstances

Variable Cost: It could vary depending on the number of units and other factors

 Formula 

(CP) : {100/(100 + Profit %)} x SP

Selling Price (SP)

The amount for which the product is sold is called the Selling Price.

Formula 

SP = MP - Discount Where, MP is the marked price of the item

Marked Price Formula (MP)

The price set by the seller before offering the discount on a commodity is called the marked price.

Formula-

 M.P. = [(100 + Gain%)/(100 – Discount%)] × C.P.

What is a simple P&L? 

A profit and loss statement is calculated by taking a company's total revenue and subtracting the total expenses, including tax. If the resulting figure – known as net income – is negative, the company has made a loss, and if it is positive, the company has made a profit. A P&L statement shows a company's revenue minus expenses for running the business, such as rent, cost of goods, freight, and payroll. Each entry on a P&L statement provides insight into the cash flow of the company and shows where money is coming from and how it is used. A profit and loss (P&L) statement refers to a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period, usually a quarter or fiscal year. These records provide information about a company’s ability or inability to generate profit by increasing revenue, reducing costs, or both. P&L statements are often presented on a cash or accrual basis. 

  Company managers and investors use P&L statements to analyze the financial health of a company, Profit, and loss accounts show your total income and expenses, and also show whether your business has earned more income than it has spent on its running costs. If that is the case, then your business has made a profit. The profit and loss account represents the profitability of a business. A P&L statement shows a company's revenue minus expenses for running the business, such as rent, cost of goods, freight, and payroll. Each entry on a P&L statement provides insight into the cash flow of the company and shows where money is coming from and how it is used. To know its profits, a business must have a detailed record of all its income and expenses. This is possible with a Profit and Loss Account. A profit and loss statement is calculated by taking a company’s total revenue and subtracting the total expenses, including tax. If the resulting figure – known as net income – is negative, the company has made a loss, and if it is positive, the company has made a profit.