Put simply, profit is the surplus left from revenue after paying all costs. Profit is found by deducting total costs from revenue. In short: profit = total revenue - total costs.
For example, if a firm has a total revenue of £100,000 and a total cost of £80,000, then they are left with £20,000 profit.
Profit is the reward for risk-taking. A business can use profit to either:
Trading does not guarantee profit. A loss is made when the revenue from sales is not enough to cover all the costs of production. For example, if a company has a total revenue of £60,000 and a total cost of £90,000, then they have lost £30,000 from trading.
Losses can be reduced or turned into profit by: