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Profit calculators are tools companies use to determine how much money they make from selling goods and services. Profit calculators are not physical machines, but instead are formulas that can be calculated by entering information into a spreadsheet or online program. Common types of profit calculators include gross profit, net income, and cash flow. In addition to calculating profit, they can also provide ratios to use as a benchmark. Benchmarking allows companies to compare their profit percentages with the industry standard or those of a leading competitor.
A gross profit calculator requires two figures: sales revenue and cost of goods sold. Most times, these figures are from a single accounting period, such as monthly or quarterly. Annual figures are also used, although this great a period will delay the calculation or require historical figures. The basic gross profit calculation is: sales revenue less cost of goods sold. Therefore, if a company has $125,000 US Dollars (USD) in sales and $75,000 USD in cost of goods sold, its gross profit is $50,000 USD. The gross profit ratio is: sales revenue less cost of goods sold divided by sales. The gross profit percentage for this example is 40 percent, meaning that $.40 USD from every $1 USD in sales is left for expenses and income.
While gross profit calculators are quite common and provide a good overarching profit percentage, net income takes the formula one step further. Net income profit calculators will deduct normal operating expenditures from gross profit to determine how much money the company has to pay stakeholders or reinvest into the business. This formula is: gross profit less expenses. Using the $50,000 USD gross profit from the previous example, the company has $35,000 USD in expenses, resulting in net income of $15,000 USD. The net income percentage — or benchmark figure — is: net income divided by sales. Therefore, the company’s net income percentage is 12 percent, indicating that $.12 USD of every $1 USD in sales goes toward the company’s net income.
Profit calculators can also help track a company’s cash flow. Because most companies use accrual accounting, they are unable to accurately track cash flow through their traditional accounting ledgers. A basic operating cash flow calculation is: earnings before interest and taxes plus depreciation or amortization less taxes. This basic formula helps companies determine how much cash they generated from their monthly operations. While not necessarily a traditional profit calculator, this formula does help track cash, which is the lifeblood of any business.
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