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total revenue minus total cost

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2016-01-18 08:06:45
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Q: How does a firm calculate its profit?
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What is 'value of a firm'?

The 'value of a firm' is connected with profit maximization. It is the present value of the firm's current profit and the future profit. It determines the value accurately.

If the firm's sales revenue income exceeds its expenses the firm has earned a profit?

If a firm's sales revenue exceeds its expenses, the firm has earned a profit.

Will economic profit exceed accounting profit?

Economic profit will never exceed accounting profit. The accountant will calculate total cost using only explicit costs (basically a transfer of money) that the firm makes. On the other hand, economists will factor in opportunity cost as well. For example, if a person takes their life's savings and invests it in a new company, the interest that the money could be making will be an opportunity cost for the firm, as well as the salary they could be earning at a different firm. This all means that economists will calculate higher costs, which means that economic profit is lower than accounting profit.

How do you calculate debt service coverage ratio of a firm?

Debt Service Coverage Ratio = Interest payable on debt/Net Profit

What is the Difference between Normal profit and Economic Profit?

In economics, normal profit is often called the break-even point. It is the level of profit where all of the costs of your business, including the salary of the CEO, are covered. When a firm has normal profit but not economic profit, the total revenue of the firm equals the total cost of the firm. However, if a firm has economic profit, total revenue is higher than total cost.

Why would shareholders be interested in a firm's profit and loss account?

The shareholders hold shares in the firm so they want to ensure that the firm is making a profit. With the profit and loss account, the shareholders can see whether the firm is making a profit or a loss. If the account indicates that the firm is making less profit over time, the shareholders may choose to sell their shares or pressure the managers to come up with strategies to increase the firm's profitability.share holders are interested in profit and loss account because they are also the owners of company and they invest in business to earn profit.

Which firm is good leveraged or unleveraged while firm is getting profit?

leveraged firm is good because it has low risk than unleveraged firm while earning same amount of profit.

When do you say a firm is in equilibrim?

a firm is in equillibrim when it attains its maximum profit

Should you calculate the profit on cost or Sales?

We should calculate the profit on sales

What is the ideal Gross profit margin of a firm?

There is no exact ideal gross profit margin and it depends on size of firm, the industry in which firm is operating and many other factors like competitors profit and market segmentation etc.

Is operating profit margin and profit margin the same?

No. Operating profit margin usually means profit in terms of strict cost and revenues of the firm itself. Actual profit margin includes other, non-firm specific costs, such as payment of debts (which is not part of operation but still a liability of the firm).

How does a firm compute Profit margin?

gross profit is divided by net sales.

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