PDSnet Glossary

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Definition

<p style="text-align: justify;">The subtracting of a business's <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">costs</span> from its <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">turnover</span> in order to arrive at its <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">profit</span>/earnings in the <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">financial period</span>. Typically, the profit calculation takes place in three steps - (1) The <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">company</span>'s <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">variable costs</span> are subtracted from turnover to give <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">gross profit</span> in the <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">trading account</span>. (2) The company's fixed expenses are subtracted from its gross profit to give <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">net profit</span> in the <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">profit and loss account</span>. (3) The company's net profit is allocated to taxation, <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">dividends</span> and reserves in its <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">income statement</span>. Finally the net, <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">after-tax profits</span> which are not distributed are added to the company's <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">retained income</span> in the <span class="glossary" style="border-bottom: 1px dotted black; cursor: pointer;">balance sheet</span>.</p>