Earnings (Profit)
Money a company makes after paying all costs.
Why it matters
Profit is what a company has left after it pays for everything it needs to run: the goods it sells, the wages it pays, the rent, the interest on its loans, and its taxes. It is the money the business actually keeps. Almost everything else an investor looks at eventually traces back to this one number.
Over time, a share price tends to follow profits. A company that keeps earning more becomes worth more, and its shares usually rise with it. A company whose profit shrinks year after year tends to lose value. That is why profit, also called earnings, is the number that ultimately drives everything else you will learn.
An everyday way to picture it
Picture a small tea stall. Through the day the owner takes in money from every cup sold. That money is not profit. Out of it the owner still has to pay for milk, sugar, tea leaves, gas for the stove, and the rent on the spot where the stall stands.
Whatever is left after all of that is paid is what the owner truly keeps. That leftover is profit. A stall that takes in ₹3,000 but spends ₹2,200 on supplies and rent keeps ₹800. The ₹3,000 sounds impressive, but the ₹800 is what actually feeds the family. A company works exactly the same way, just with bigger numbers.
From revenue to profit
Every company's profit comes from one simple chain. Money comes in from customers, and that is revenue. Money goes out to run the business, and those are the costs. Whatever is left over is profit.
Costs come in layers, and that gives you two kinds of profit you will see often.
| Kind of profit | What it means in plain terms |
|---|---|
| Gross profit | What is left after only the direct cost of making or buying what you sell, called the cost of goods |
| Net profit | What is left after every cost: goods, salaries, rent, interest, and tax. This is the real bottom line, and the one investors mean when they say profit. |
Profit margin: how much a company keeps
Profit on its own does not tell you how efficient a business is. A profit margin does. It is simply profit written as a percentage of revenue, and it answers a sharp question: out of every rupee that comes in, how much does the company actually keep?
| Shop | Revenue | Profit | Margin | What it means |
|---|---|---|---|---|
| Shop A | ₹10,00,000 | ₹1,00,000 | 10 percent | Keeps ₹10 of every ₹100 of sales |
| Shop B | ₹10,00,000 | ₹3,00,000 | 30 percent | Keeps ₹30 of every ₹100 of sales |
Both shops sell the same ₹10,00,000 of goods, yet Shop B keeps three times as much. A higher margin means more of each rupee stays with the business, which usually points to stronger pricing, lower costs, or both.
Growing profit, shrinking profit
A single year's profit is only a snapshot. What investors care about most is the direction. Profit that grows year after year is the clearest sign of a healthy business, and it is the strongest long-term reason a share price rises. Profit that shrinks is a warning worth taking seriously.
| Profit trend | What it usually signals | Effect on the shares over time |
|---|---|---|
| Rising year after year | A healthy, growing business | Price tends to climb |
| Flat | Steady, but not expanding | Price tends to drift sideways |
| Shrinking | Something is going wrong | Price tends to fall |
See it for yourself
Set how much money comes in and how much goes out, and watch the profit and margin the business is left with.
Worked example: a small business
Let us make it concrete. A small business takes in ₹10,00,000 of revenue in a year and spends ₹7,50,000 to run itself. Subtract the costs from the revenue and it keeps ₹2,50,000 of profit, which is a 25 percent margin. Now watch what a change on either side does to that profit.
| Scenario | Revenue | Costs | Profit | Margin |
|---|---|---|---|---|
| Starting point | ₹10,00,000 | ₹7,50,000 | ₹2,50,000 | 25 percent |
| Costs rise by ₹1,00,000 | ₹10,00,000 | ₹8,50,000 | ₹1,50,000 | 15 percent |
| Revenue grows by ₹2,00,000 | ₹12,00,000 | ₹7,50,000 | ₹4,50,000 | 37.5 percent |
Notice how much the bottom line moves. When costs rose by ₹1,00,000, profit fell by the same ₹1,00,000, and the margin dropped from 25 percent to 15 percent. When revenue grew by ₹2,00,000 while costs stayed flat, almost all of that extra revenue fell straight through to profit. This is why investors watch both sides: a business grows its profit either by selling more or by controlling its costs.
You decide: cut the price, or hold the line
Suppose a rival opens next door. Your business sells a product at ₹1,000 each and currently sells 1,000 of them, at a cost of ₹750 each. You have to decide how to respond. Cut the price to pull in more buyers, or hold the price and protect each sale.
| Your choice | Units sold | Revenue | Costs | Profit | Margin |
|---|---|---|---|---|---|
| Hold the price at ₹1,000 | 1,000 | ₹10,00,000 | ₹7,50,000 | ₹2,50,000 | 25 percent |
| Cut the price to ₹900 | 1,200 | ₹10,80,000 | ₹9,00,000 | ₹1,80,000 | 16.7 percent |
Cutting the price sold 200 more units and brought in more revenue, yet profit fell from ₹2,50,000 to ₹1,80,000. Each sale now earns less, and the extra volume did not make up for the thinner margin. More sales does not always mean more profit. That trade-off sits behind every price cut, and it is why investors look at profit and margin, not just revenue.
Remember this
| Term | What it means |
|---|---|
| Revenue | All the money a company takes in from sales |
| Costs | Everything the company pays to run the business |
| Profit | What is left after costs; the money the business actually keeps |
| Profit margin | Profit as a percentage of revenue; how much it keeps from each rupee |
| Growing profit | The strongest long-term reason a share price rises |
In short: revenue is what comes in, and profit is what stays. A company that grows its profit and keeps a healthy margin tends to become more valuable over time, and that is what you are really buying when you buy a share.