Profitability and Profit

What is the difference between Profitability and Profit?
They may look similar but they are not the same. Both are accounting metrics used in analyzing the financial success of a business.

Definition of Profit

Profit is an absolute number determined by the amount of income or revenue above and beyond the costs or expenses a company incurs. It is calculated as total revenue minus total expenses and appears on a company’s income statement. No matter the size or scope of the business or the industry in which it operates, a company’s objective is always to make a profit.


Definition of Profitability

Profitability is closely related to profit – but with one key difference. While profit is an absolute amount, profitability is a relative one. It is the metric used to determine the scope of a company’s profit in relation to the size of the business. Profitability is a measurement of efficiency – and ultimately its success or failure. A further definition of profitability is a business’s ability to produce a return on an investment based on its resources in comparison with an alternative investment. Although a company can realize a profit, this does not necessarily mean that the company is profitable.

Horton, Melissa “The Difference Between Profitability and Profit” 31 March 2019

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