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Math 5: What is Profit? 22 Views


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Description:

If you know your earnings, and you know how much you've spent, how do you calculate your profit? That's right - you hire an accountant. (Or, if you'd rather save a few bucks, you can watch this video.)

Language:
English Language

Transcript

00:14

You need plenty of things to run a successful business: a strong work ethic, skilled employees, [People at a meeting]

00:19

a solid base of consumers...

00:21

…oh, and a good idea's also pretty important.

00:24

After all, it'd probably be pretty hard selling people on skydiving for dogs. [Dog parachuting]

00:29

But even more important than a business that doesn't mix jumping out of planes and pet

00:32

care?

00:33

Profit.

00:34

Profit is the difference between how much money a business earns, and how much it spends. [Coop pointing at a blackboard]

00:38

We can think about this in terms of a simple formula: Total sales – Total expenses = Total

00:44

profit.

00:45

So if you like money—and most business people do—you'll definitely want to keep your total [Woman in a suit jumps into pool full of cash]

00:49

profit high and growing.

00:51

An easy way to understand how profit works is to think about a particular business. [Pete thinking about pizza]

00:55

Let's say our ol' pal Pete Parham dreams of starting a pizza parlor…

00:58

…so one day he gets a loan from the bank…

01:00

…rents a shop, and starts Pete P. Parham's Practically Perfect Pizza Parlor. [Picture of the pizza parlor]

01:05

After his first month, Pete looks at all the money he's made, and wouldn't you know it? [Pile of money]

01:09

It's a grand total of $20,000.

01:11

Does that mean Pete has a profit of twenty grand, and he should take an expensive, pizza-funded [Pete surfing, then he falls off]

01:15

vacation?

01:16

Eh….not so fast.

01:18

Remember, "Total sales – Total expenses = Total profit"…

01:22

…and $20,000 is just Pete's total sales.

01:25

So to figure out his profit, we need to figure out his expenses.

01:29

And also get him a towel.

01:30

No one wants to do math while wet. [Pete walking back onto the beach looking unhappy]

01:32

First, there's that loan.

01:33

He doesn't have to pay it back all at once, but he almost definitely has to pay the bank [Pete walking into the bank]

01:37

something this month.

01:39

Let's say $3,000.

01:40

Next, there's rent.

01:42

His landlord isn't just letting him use the space because he likes the smell of fresh [Pete walking into his landlords office]

01:46

pizza, so that's another $2,000.

01:47

He also has to cover a lot of day-to-day expenses.

01:50

You can't make pizzas out of thin air, so the cost of ingredients might run him around…oh, [Pete paying the guy delivering the ingredients]

01:54

let's say $5,000.

01:56

And last but not least, there are the employees.

01:59

It's pretty much impossible to take orders, make, and deliver pizza all by yourself. [Pete answering the phone in his car]

02:03

Unless you're the Flash, but we're guessing he has better things to do than make pizzas. [Pete delivering pizzas to someones house]

02:07

Either way, that means paying a few employees, which could cost another $5,000.

02:11

Time for some math.

02:12

If we add up all of those expenses, we get a grand total of $15,000.

02:17

Now let's look back at our original formula for profit.

02:20

His total sales were $20,000…

02:21

…and his total expenses were $15,000…

02:24

…leaving him with a total profit of $5,000.

02:27

Not too shabby, but if he wants to go on vacation—and maybe rent a pizza-shaped surfboard—it'd [Pete holding the pizza shaped surfboard]

02:33

probably be a good idea to save up for a few months. [Pete dreaming of his holiday while holding customers pizzas]

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