What Is Profit?

According to some, profit is the entire reason for business to exist.

Profit refers to the amount of money a business keeps from its sales after all costs are accounted for. There are different ways to measure it, but it essentially refers to the money that a business owner keeps or earns from the business.

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a money bag on a pile of cash — Image source: Getty Images.

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Additionally, you can compare profit margins between businesses and industries. Some industries generate high profit margins, including the tech and healthcare sectors. When you look at profit margin, it's important to compare two companies within the same industry, or to understand that some industries have wider profit margins than others.

Finally, looking at profits higher up on the income statement can also be informative. Gross profit margin, for example, can be a good indicator of strength. In the semiconductor industry, gross margin is a good representation of pricing power and relative strength to competitors. It also shows how much money a company has to invest after they've paid for their products.

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Related investing topics

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Revenue vs. Profit: What's the Difference?

These two numbers differ but are both important when evaluating a stock.

When to Sell Stocks -- for Profit or Loss

When is it time to exit your position in a stock? Consider these factors.

3 Most Important Financial Statements

When researching companies, the financial statement is a great place to start.

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About the Author

Jeremy Bowman has been a contributing Motley Fool stock market analyst, covering technology, consumer goods, and macroeconomic trends since 2011. Before The Motley Fool, Jeremy was a newspaper reporter, restaurant manager, and English teacher abroad. He holds a bachelor’s degree in English from Colorado College and a master’s degree in business administration from American University. One of his Motley Fool headlines was briefly featured on Late Night with Stephen Colbert.

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