Profit can be referred to as net earnings or net income. Profits are also called ROI or return on investment. However, this term is often limited to securities like bonds or stocks. But still, some companies use ROI to mean short or long term business outcomes. Taxable income is another term for profit.
The profit & loss of a certain company is determined by finance professionals through accounting. They can determine what created the profits as well as the losses. They can also determine a company’s net worth.
It seems that by simply starting to define one accounting term, it eventually leads to defining other terms as well. Net worth is another term that is quite difficult to understand. It refers to the resulting amount after deducting the liabilities of a company from the assets. Private companies refer to net worth as owner’s equity.
Why owner’s equity? Well, after deducting all the liabilities, what’s left basically belongs to the owner. In the case of public companies, the profit of the business is returned as dividends to shareholders. As you can see, before owner or shareholders of a company can take hold of the profits, all liabilities must be deducted first.
Every business aims to get a positive figure because that would mean profit to them; if not, the business is at a loss. How can you tell if a business is at a loss? All liabilities will be deducted from the assets and if results to a negative amount, then the business is at a loss. The accounting staff of the company can still pursue effective measures to revive the business. If the business has efficient and effective accounting staffs, the business can improve in the near future.
It cannot be argued that an accounting staff is needed to ensure the company’s success. Without them, the success of the business is not guaranteed. So the owner of the business should choose the best accounting staff. That way, all the financial transactions and decisions are noted and studied. Only then can the company gain profits.