Profit and finance glossary

The total money earned from sales during a period, before any cost is taken out. Also called the top line, sales, or turnover. Revenue is not what you keep: a $500,000 revenue year can still end in a loss if costs ran higher. It is the starting point, not the result.

The direct cost of the things you actually sold: the wholesale price, or the raw materials, manufacturing and direct labour that made them, plus the freight to bring stock in. Stock bought but not yet sold is inventory, not COGS. See the full working in what is cost of goods sold.

Revenue minus cost of goods sold. It is the money left to cover every other cost in the business, so it is the pot that running costs, interest and tax all come out of before anything reaches the owner.

The costs of running the business rather than making the product: rent, software, marketing, wages, platform and payment fees, insurance. Often shortened to opex. They sit between gross profit and net profit on the statement.

The operating costs that stay roughly the same whether you sell a little or a lot: rent, core software, insurance, admin salaries. Overhead is the baseline you have to cover every month before a single sale earns you anything.

What is left after every cost: COGS, operating expenses, interest and tax. Also called the bottom line or net income. This is the real measure of whether the business made money. The step-by-step working is in how to calculate net profit.

The money that actually reaches the owner, after the business has paid its costs and set aside tax. For a sole trader it is close to net profit; for a company it is what you draw as salary or dividends. It is the number the household budget is built on, and it is usually smaller than people expect.

Gross profit as a percentage of revenue. It shows how much of each sales dollar is left after the direct cost of the product. A 60 percent gross margin means 60 cents of every dollar survives COGS to cover everything else.

Net profit as a percentage of revenue: the share of each sales dollar you keep after every cost. Gross margin and net margin measure different things, and the gap between them is where the running costs live. The two are compared directly in gross margin vs net margin. For what counts as healthy, see what is a good profit margin.

Both describe the gap between cost and price, but divide by different things. Margin is profit over the selling price. Markup is profit over the cost. Markup always reads as the larger number, so confusing the two overstates how much a price actually earns.

Earnings before interest, tax, depreciation and amortisation. It adds those four items back to profit to show the underlying operating result, which helps when comparing businesses with different debt or asset structures. Useful for comparison, but it is not what you keep: the owner is still paid from net profit.

What a single sale leaves over after its own variable costs, the amount it contributes toward covering fixed costs and then profit. Selling price minus variable cost per unit. It is the engine behind break-even.

The point where total revenue exactly covers total costs, so profit is zero. Below it you lose money, above it you make it. In units, it is fixed costs divided by the contribution margin per unit.

The actual money moving in and out of the bank over a period. Different from profit because of timing: stock paid for now but sold next month, an invoice sent but not yet paid, or a loan repayment that is cash out but not a cost. Positive cash flow means more came in than went out.

Profit says the business model works over time; cash flow says the bills can be paid this week. A business can be profitable on paper and still unable to make payroll if its money is tied up in unsold stock or unpaid invoices. Watch both, not one.