Profit and Loss

Profit and loss are terms often used by entrepreneurs and retailers to know whether a particular business or deal is profitable or not. Even in our daily lives, we apply the concept of profit and loss.

For instance, while shopping for a similar product from two different online stores, we tend to make the purchase from the store that offers the product for a cheaper price. Here, the amount that we save by choosing the store of our choice can be considered as profit.

Profit and loss can be calculated in a few ways. There are certain formulas, as mentioned below, to calculate the profit and loss. 

The Basic Formula - Any business will have a selling price and a cost price. So the most basic formula to calculate the profit is:

Profit = Selling Price (SP) - Cost Price (CP)

This is to say that whenever the selling price is more than the cost price, then the business is said to be profitable. Likewise, the basic formula to ascertain the loss is:

Loss = Cost Price (CP) - Selling Price (SP)

When the cost price is greater than the selling price, then the business is said to be under loss. 

Profit and Loss Percentage - To find the percentage of the profit or loss, we can use the formulas given below:

Profit % = (Profit / Cost Price) × 100

To calculate the profit percentage, the total profit is divided by the cost price, and the result is multiplied by 100. 

For e.g., let’s say an organization invested (cost price) $500 and made a profit of $1000. Now, the profit percentage can be calculated by using the formula,

Profit % = (Profit / Cost Price) × 100

Substituting the values, we get, profit % = (1000 / 500) × 100

Therefore, profit % = 2 × 100 = 200%. This means that the organization made a profit of 200%.

Now, let’s learn the formula to calculate the loss percentage. Loss % = (Loss / Cost Price) × 100

 
For e.g., assume a company is under loss. The total loss incurred is $2000 and the cost price is $6000. Now, to calculate the loss percentage, just substitute the given numbers in the formula.

Loss % = (2000 / 6000) × 100

Therefore, loss % = 0.3333 × 100 = 33.33%. This means that the company is facing a loss of 33.33%.

Calculating profit and loss can sometimes be tricky for students, especially when dealing with large numbers. So, in this section, we’ll be focusing on a few tips and tricks that we can learn to save time and make our lives easier.

• Memorize basic formulas such as P = SP - CP and L = CP - SP, where P is profit, L is loss, CP is cost price and SP is selling price. 

• Dealing with different numbers: If we need to find the total profit of an item sold at two different prices, we can use the formula,
  
  Total Profit % = x + y + (xy / 100)
  
  Let’s assume that a product was initially sold at x% profit and after a few days, at y% profit, then in this situation, the above formula can be used to find the total profit percentage. 

• Cross verify answers: Always remember to cross-check your answers with correct logic. For e.g., if the selling price is greater than the cost price, the answer will always be profit. Likewise, if the cost price is greater than the selling price, the answer should be a loss.