- The core profit and loss formulas remain standard
- Profit equals Selling Price minus Cost Price, and both profit and loss percentages are always calculated on the cost price
- In accounting, the profit and loss statement is the income statement, presented under IFRS IAS 1 as the statement of profit or loss.
The profit and loss formula is used in commerce and mathematics to work out the value of an item in the market and to see how profitable a business is. Every item has a cost price and a selling price. Based on these two values, you can calculate the profit earned or the loss incurred on a particular product.
The important terms covered here are cost price, fixed cost, variable cost, semi-variable cost, selling price, marked price, list price, and margin. If the selling price is higher than the cost price, the trader makes a profit; if the cost price is higher than the selling price, it becomes a loss.
What Is the Profit and Loss Formula?
The profit and loss formula compares an item's cost price with its selling price to measure how much a business gains or loses. When the selling price exceeds the cost price you earn a profit; when the cost price is higher you incur a loss. Profit equals selling price minus cost price.
Before working through the formulas, it helps to be clear on the key terms used in every profit and loss problem.
- Profit: the amount earned when a product is sold for more than its cost price.
- Loss: the amount lost when a product is sold for less than its cost price.
- Fixed cost: a cost that stays the same in all situations and does not vary with output.
- Variable cost: a cost that changes according to the number of units produced.
- Semi-variable cost: a cost that is partly fixed and partly varies with output.
- Selling Price (SP): the price at which an item is actually sold.
- Marked Price (MP): the inflated price a retailer marks on the tag, from which discounts are offered.
- List Price: the price printed on the tag of the article; for most purposes it is the same as the marked price.
- Margin: the profit expressed as a percentage of the selling price.
How Do You Calculate Profit and Loss Percentage?
Profit and loss percentages are always calculated on the cost price. Profit percentage equals profit divided by cost price, multiplied by one hundred. Loss percentage equals loss divided by cost price, multiplied by one hundred. Expressing gains this way lets you compare deals of different values on a common scale.
The profit percentage is calculated as: Profit % = 100 x Profit / Cost Price. In the same way, the loss percentage is calculated as: Loss % = 100 x Loss / Cost Price. Note that both are based on the cost price, not the selling price.
Worked example: a pen is bought for Rs 20 and sold for Rs 26. Here CP = 20 and SP = 26, so Profit = 26 - 20 = Rs 6. Profit % = 100 x 6 / 20 = 30%. If instead a cup costing Rs 160 is sold for Rs 128, the result is a loss of Rs 32, giving a loss of 20%.
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Beyond the basics, several shortcuts speed up calculations. Selling price equals cost price times one plus profit percentage over one hundred. Two successive gains of m and n percent combine to m plus n plus mn over one hundred. Discount equals marked price minus selling price. These tricks help solve exam problems quickly.
Once you can calculate profit and loss and their percentages, the following standard formulas let you solve most exam problems quickly, starting from the general ones.
- Profit, P = SP - CP (when SP is greater than CP)
- Loss, L = CP - SP (when CP is greater than SP)
- P% = (P / CP) x 100
- L% = (L / CP) x 100
- SP = {(100 + P%) / 100} x CP
- SP = {(100 - L%) / 100} x CP
- CP = {100 / (100 + P%)} x SP
- CP = {100 / (100 - L%)} x SP
- Discount = MP - SP; and SP = MP - Discount
- For a false weight, gain % = (true weight - false weight) / false weight x 100
- For two successive gains of m% and n%, the net gain = (m + n + mn / 100)%
- When there is a profit of m% and a loss of n%, the net result = (m - n - mn / 100)%
| Quantity | Formula (2026 Quick Reference) |
|---|---|
| Profit | SP - CP |
| Loss | CP - SP |
| Profit % | (Profit / CP) x 100 |
| Loss % | (Loss / CP) x 100 |
| Selling Price | {(100 + Profit%) / 100} x CP |
| Discount | Marked Price - Selling Price |
How Is the Profit and Loss Statement Used in Accounting?
In accounting, the profit and loss statement, also called the income statement, summarises a company's revenues, expenses, and costs over a period such as a quarter or year. Under IFRS it forms part of the statement of profit or loss. It shows whether the business earned a net profit or loss.
The profit and loss (P&L) statement is a financial statement that summarises the revenues, expenses, and costs incurred during a specified period, usually a financial quarter or year. It is one of the three main financial statements a company prepares, alongside the balance sheet and the cash flow statement.
These records show a company's ability, or inability, to generate profit by increasing revenue, reducing costs, or both. Comparing P&L statements across different accounting periods is more useful than the raw numbers alone, because the trend in revenue, operating costs, and net profit over time reveals how the business is really performing.
To arrive at net profit, subtract the cost of sales from net revenue to get gross profit, subtract overheads to get operating profit, subtract any other expenses to find profit before tax, and finally subtract tax to reach the net profit or net loss for the period.
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Microsoft Excel makes tracking profit and loss simple. Create columns for income, expenses, profit, and percentage. To find profit, subtract expenses from income using a formula like equals A2 minus B2. To find profit percentage, divide profit by income, then format the cell as a percentage. Drag formulas down to fill the table.
Microsoft Excel is a powerful accounting tool for anyone running a small business. It lets you track money coming in and going out with simple spreadsheets and formulas that are easy to use when calculating profits and costs. The steps below work in all recent versions of Excel.
- Create a table with four columns: Income, Expenses, Profit, and Percentage. Fill in the Income and Expenses columns with your figures.
- In the Profit cell (C2), enter the formula =A2-B2 to subtract expenses from income.
- Drag the corner of the cell down to apply the profit formula to the rest of the table.
- In the Percentage cell, enter =C2/A2 to divide profit by income.
- Select the percentage column, then choose Percentage from the number format menu so the value displays correctly.
- Use the =SUM function at the bottom of the Profit column to total your overall profit.
What Are Some Solved Profit and Loss Examples?
Worked examples make the formulas concrete. If an article costs Rs 450 and sells for Rs 500, the gain is Rs 50 and the profit percentage is about 11.1 percent. If a fan sells for Rs 465 at a 7 percent loss, its cost price was Rs 500. Practising varied problems builds speed and accuracy.
- Example 1: An article is bought for Rs 450 and sold for Rs 500. Gain = SP - CP = 500 - 450 = Rs 50. Gain % = (50 / 450) x 100 = 11.1% (100/9 %).
- Example 2: A fan is sold for Rs 465 at a loss of 7%. CP = (100 / 93) x 465 = Rs 500.
- Example 3: If profit is 80% of cost and the cost rises 20% while the selling price stays the same, the profit falls from 80% to 50%, a decrease of 30 percentage points.
- Example 4: Toys are bought at 10 for Rs 40 and sold at 8 for Rs 35. CP per toy = Rs 4, SP per toy = Rs 35/8, gain = 3/8, so gain % = (3/8) / 4 x 100 = 9.375%.
- Example 5: A dishonest grocer uses weights 15% less than the true weight and adds a 20% profit. Gain % = (1200 - 850) / 850 x 100 = 41.17%.
What Is the Profit/Loss Ratio?
The profit/loss ratio measures a trading system's average winning trade against its average losing trade over a period. For example, an average win of 750 dollars and an average loss of 250 dollars gives a ratio of three to one. Many traders look for at least a two to one ratio.
The profit/loss ratio is a measure of how well a particular trading system or strategy generates profit rather than loss. It is calculated by taking the average profit from all winning trades and dividing it by the average loss on all losing trades over a chosen period. The higher the ratio, the better.
A consistently strong profit/loss ratio can encourage a trader to keep using the same strategy to build larger cumulative profits. A poor ratio, on the other hand, signals that the strategy or system should be reviewed, refined, or abandoned before it causes further capital losses.