What is the Difference Between Profit and Profitability?
🆚 Go to Comparative Table 🆚The main difference between profit and profitability lies in their definitions and how they are used to analyze a company's financial success:
- Profit: Profit is the amount of money a company generates after expenses. It is an absolute measurement, calculated as total revenue minus total expenses, and appears on a company's income statement. Profit can be expressed as a dollar amount and is often referred to as the "bottom line".
- Profitability: Profitability is a financial metric used to determine how successful a company is in terms of its ability to generate profits. It is a relative measurement, often expressed as a ratio, percentage, or decimal. Profitability measures the long-term health of a company, looking at what its profits mean in relation to factors like sales, expenses, and other elements.
In summary, profit is a concrete figure that represents the money a company has left after paying all expenses, while profitability is a measurement that helps determine the success or failure of a company based on its ability to generate profits over time. Both profit and profitability are important for understanding a company's financial health, but they serve different purposes and should not be confused with each other.
Comparative Table: Profit vs Profitability
Here is a table highlighting the differences between profit and profitability:
| Feature | Profit | Profitability |
|---|---|---|
| Definition | Profit is the amount of money a company earns after all expenses are paid. It is calculated as total revenue minus total expenses. | Profitability is a metric used to determine the success or failure of a company. It is closely related to profit but is a relative concept, measuring profit in the form of percentages or decimals. |
| Purpose | Profit is a measure of a company's financial performance in a specific period and shows how much money a company has left over after paying all expenses. | Profitability is a long-term metric used to gauge the company's success over time, telling whether a company is generating enough revenue to cover its expenses and make a profit. |
| Calculation | Profit = Revenue - Expenses. | Profitability can be calculated using various ratios, such as Profit Margin = (Revenue - Expenses) / Revenue, Gross Margin Ratio = (Revenue - Cost of Goods Sold) / Total Revenue, and Return on Investment = (Gain from Investment - Cost of Investment) / Cost of Investment. |
| Relative vs. Absolute | Profit is an absolute amount, meaning it is determined by the amount of income or revenue above and beyond the costs or expenses. | Profitability is relative, meaning it is determined by the extent to which a company earns a profit compared to its expenses or other companies in the same industry. |
Both profit and profitability are essential indicators of a company's financial health, but they serve different purposes. Profit allows a company to reinvest in its business and grow over time, while profitability helps to determine whether a company is yielding enough profit to sustain and grow.
- Profit vs Revenue
- Profitability vs Liquidity
- Profit vs Gain
- Net Income vs Net Profit
- Turnover vs Profit
- Margin vs Profit
- Operating Profit vs Net Profit
- Surplus vs Profit
- Cash vs Profit
- Accounting Profit vs Economic Profit
- Net Profit vs Gross Profit
- Gross Profit vs Operating Profit
- Wealth Maximization vs Profit Maximization
- Balance Sheet vs Profit vs Loss
- Gross Profit vs Gross Margin
- Earnings vs Revenue
- Cost Center vs Profit Center
- Income vs Revenue
- Efficiency vs Productivity