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Profit vs. Profitability

Profit is how much money your investment made for you, or how effective your investment was at making you money, whereas, Profitability is how efficiently your investment made you that same money.

  Profitability- how efficiently the business assets are being used in generating profit.

Profitability is measured by dividing net profit by total assets (see below).


(ROI = Return On Investment)

Profit- money (represented by an absolute number) that is earned on an investment. Profit is broken down into two basic types: accounting profit and entrepreneurial profit.

Accounting profit- the amount of a business' revenues that is left over after paying all expenses.

Entrepreneurial profit- the amount of money you earn in a business, that is above and beyond what you would have earned, had you chosen to invest time and money in some other venture.


You earn $300 a week in your current job. You decide that you want to start your own mailbox painting business. Your first week, you earn $200 painting mailboxes. Subtract the $20 you spent on gas and supplies that week, and you end up with an accounting profit of $180, but an entrepreneurial profit of (-)$120, or an entrepreneurial loss of $120.
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