People use a number of different terms to describe profit, and these cannot be compared directly. Profit and margin are used to describe business performance. Profit is described in terms of a cash value whereas margin is described in terms of a percentage.

There are a number of levels of profit that increase in their level of precision.

• Gross profit describes total income minus the cost of goods. From this, other expenses must be paid.

• Net profit describes total income minus the cost of goods and business expenses. 

• EBIT is an accounting term that describes total revenue minus costs including interest payments and tax (some people may refer to this as net profit after tax).

• EBITDA describes total revenue minus costs including interest payments, tax, depreciation and amortisation. (Depreciation takes account of the reducing value of your assets and amortisation is an accounting process that spreads capital costs over a period of years.) This is often used as a measure of profitability of a business as a going concern.

These are all top line measures. To create some management information we need to be more granular with this data.