Basics of Profit and Loss

It might seem like a no-brainer to define profit and loss precisely. But of course, these have definitions like everything else. Profit can be called different things, for a start. It’s sometimes called net income or net earnings. Your real estate business generates profit from rents, commissions, and other sources and from controlling the costs of running the business. You might also hear profit referred to as Return on Investment or ROI. Some definitions limit ROI to measuring investments in securities like stocks or bonds. Many companies also use this term to refer to short-term and long-term business results. You may hear profit called net income.

It’s the job of the accounting and finance team to assess the profit and loss of a company. They know what drove the results of both sides of the business equation. They also determine what the net worth of your business is. Net worth is the resulting dollar amount from deducting its liabilities from its assets. Privately held companies also call net worth “owner’s equity” since anything left over after the company pays all the expenses belongs to the owners. In a publicly held company, the shareholders receive this profit as dividends. In other words, all liabilities have the first claim on any money the company makes. Anything that’s left over is profit and belongs to the owners. A company determines its bet worth by deducting all the liabilities from all the assets, including cash and property.

Showing a profit or a positive figure on the income statement is, of course, the aim of every business. America built its economy on the entrepreneurial spirit. However, it doesn’t always work out that way. Knowing your numbers, net worth, and positioning your business for success is the key to a prosperous long-term financial outlook.