Profit – Buying Low and Selling High
Profit is the gain made when something is sold for more than it cost. It is one of the most important ideas in business and everyday financial decisions.
The practice of calculating profit as a percentage of cost, rather than just a raw amount, dates back to medieval Italian merchant arithmetic — the same double-entry bookkeeping tradition (formalised by Luca Pacioli in 1494) that gave the world modern accounting. Expressing profit as a percentage lets very different businesses compare performance fairly: a market stallholder making £12 profit on a £40 batch of goods (30%) is doing just as well, proportionally, as a car dealer making £2,400 profit on an £8,000 vehicle (also 30%), even though the raw amounts look nothing alike.
Key Terms
| Term | Meaning |
|---|---|
| Cost Price (CP) | What you paid to buy or make the item |
| Selling Price (SP) | What you sold the item for |
| Profit | SP minus CP (when SP is greater than CP) |
| Profit % | Profit expressed as a percentage of the cost price |
Formulas
Profit = Selling Price minus Cost Price. Profit % = (Profit / Cost Price) times 100.
Worked Examples
Profit = 52 - 40 = 12. Profit % = (12 / 40) times 100 = 30%.
Profit = 325 - 250 = 75. Profit % = (75 / 250) times 100 = 30%.
Profit amount = 25% of 60 = 15. SP = 60 + 15 = 75. Or: SP = 60 times 1.25 = 75.
SP = CP times 1.40. CP = 84 / 1.40 = 60.
Key Takeaways
- Profit = SP minus CP.
- Profit% is always calculated on the cost price.
- To find SP given CP and profit%: SP = CP times (1 + profit%/100).
- To find CP given SP and profit%: CP = SP / (1 + profit%/100).