The immediate goal that any production pursues, under what is called a market economy, is to make a profit. It creates some guarantees that the company will continue to exist. This is due to the fact that the accumulation of profits in the form of various reserve funds can help to overcome all the consequences of the risk associated with the sale of goods.
Revenue and profit are different concepts. In the market, enterprises usually act as relatively separate producers. They set the price of their products, then sell them to the consumer, as a result of which they receive cash proceeds. But this does not mean that profit is made. In order to identify the financial result, it is necessary to compare the costs of production and sales (they take the form of cost) with revenue. If the proceeds are above cost, the financial result is profit. If it is equal to the cost, then you can only reimburse all costs of sales and production. But if costs exceed revenue, as a result, the company receives losses, the so-called negative financial result.
Revenues are nothing more than cash receipts from the sale of products in the relevant market. And gross revenue is the revenue that can be called the total received by the company from the sale of work, goods, services and their own material values.
The gross income of a company is the revenue resulting from all the activities of the company for a specific period of time. And the average income of the company is revenue, calculated only on the unit of production that is sold.
So, if the gross income is cleared of costs (costs), then the final result of the activities of an enterprise will be profit or loss.
What is the essence of profit and its functions? Currently, its source is considered to be the innovative activity and work of the entrepreneur himself; his ability to navigate in uncertain economic circumstances and risk pay; income received from the use of investments, capital in production; monopolism, that is, the economic power of the company over the market.
In an effort to make a profit, the enterprise improves its production, and, consequently, stimulates the growth of investments, which lead to a significant increase in production volumes and the expansion of jobs. As a result, not only the industry is developing, but also the national economy as a whole.
Profit performs the following functions: information, stimulating and distribution. It is divided into several varieties:
1. Arithmetic. This is the difference between costs and income. The costs are usually different, but income is expressed as gross income, that is, total. Therefore, profits are considered differently.
2. Normal. This refers to the normal, necessary income that arises from the conduct of a business. The value of this profit depends on the lost profit, that is, the entrepreneurial entrepreneur and alternative opportunities for capital investment.
3. Economic. This refers to the difference between economic costs, which include normal profit and gross income. It is also called superprofit.
4. Household. It is a sum of economic and normal profit. This is nothing but the initial base in the process of distribution and use by the enterprise of the profit.
5. Accounting. It is calculated according to this criterion: it is necessary to subtract from the gross income the apparent costs of the purchase (external origin). But if implicit costs are taken away from this variety of profit, the result will be net economic profit.