For the less experienced entrepreneur, the jargon specific to the business can cause doubt and confusion. These difficulties are common, especially when dealing with similar terms that are usually used for similar cases. For example: Do entrepreneurs know the difference between profit and pension?
Know the difference between profit and income
Although similar and almost always used as synonyms in the same situations; Profit and rent are two different things. But what does each of these terms mean? How do you calculate them and what impact does each have on your business?
what is profit
Win rate simply refers to the ratio of net income to the company’s total income. That means it’s a variable that shows the earned profit through your organization through this combination. In order to make the calculations, it is necessary to divide the value of the net profit by the total income.
Let’s say your business has net income of $20. This represents the total value remaining after closing the accounts: paying taxes, staff and other expenses. This value is what is left of the total income ($100 in this example).
If we divide the $100 by the $20, we get a value of 0.20. Multiply that number by 100 and you get the final win rate result. In this example, the rate was left at 20%.
what is rent
Income is directly related to rewind speed of invested value. That is, in order to learn more about this variable, it is necessary to take it into account net profit and the investment ready. The calculation results from dividing the net profit by the invested capital.
Let’s say your initial investment in a particular application was $50,000 over a year. At the same time, he earned an income of about $300,000.
To find the rental price, divide the $50,000 representing the initial investment by the return value ($300,000 in this case). You get something around 0.166. Now multiply that number by 100 and you get the final profitability number. In this example, your business was earning 16.6% per year.
When to use each
Now that you know the terms profit and income, how do you know which one to calculate at every moment of your business? That win rate is used to in the short termto know if the deal is justified. All expenses must be paid for this and a net profit must still be generated. Because these are percentages, it’s possible to compare the growth of different companies, regardless of industry or size.
That rental index is calculated to eliminate any doubt long term, if you do not know whether it is worth making certain investments in a company. In addition, it allows to identify the life cycle. With seasonal sales or increasing products, income needs to be higher for the business to survive. Now you know the difference between profit and income.