Profit and loss percentage are used to refer to the amount of profit or loss that has been incurred in terms of percentage. It should be noted that the percentage is one of the methods for comparing two quantities. Daily we come across a variety of situations where we calculate or compare things in “per cent”. Most common ones are the situations related to buying and selling of items. While the sale of a good, one can either gain a profit or bear a loss, which is generally calculated in terms of percentage.
Profit and Loss Percentage Formulas
Before we go through profit and loss per cent, we need to make ourselves familiar with few terminologies, that are generally used in sales/purchasing of goods.
Cost Price (CP)
Cost price is the price at which we have purchased an item. This is abbreviated as CP.
Selling Price (SP)
Selling price is the price at which we sell an item; in short, it is written as SP.
During the purchase and sale of an item, depending upon the CP or SP, it can be either profit or loss for the seller.
Profit
When the Selling Price of an item is more than the Cost Price of the same item, then this is the condition of profit for the seller.
S.P. > C.P.
The difference in the amount of the Selling Price and the Cost price is the net Profit, given as-
Net Profit = S.P. – C.P.
Loss
When the Cost Price of an item is more than the Selling Price of the same item, then this is the condition of loss for the seller.
S.P. < C.P.
The difference between the amount of Cost Price and the Selling Price is a net loss.
Net Loss = C.P. – S.P.
Now we can easily conclude whether a sale was profitable or ended in a loss. Also, we know how to evaluate the profit or loss amount. Let’s learn how to express this amount in percentage.
Also Check: Profit Formula
Using the above formulas we can always estimate what is the profit or loss amount. This can be converted in terms of percentage as well i.e. profit % or loss %. The formula for estimating profit % or loss % is as follows:
Profit Percentage
\(\begin{array}{l}Profit\;\%\; =\,\frac{S.P\,-\,C.P}{C.P}\,\times 100\;=\,\frac{Net\;Profit}{C.P}\,\times 100\end{array} \)
Loss Percentage
\(\begin{array}{l}Loss\;\%\; =\,\frac{C.P\,-\,S.P}{C.P}\,\times 100\;=\,\frac{Net\;Loss}{C.P}\,\times 100\end{array} \)
Note- It is to be strictly noted that the Profit or Loss percentage is always calculated on the Cost Price of an item, until and unless it is mentioned to calculate the percentage on Selling Price.
Profit and Loss Percentage Example
Example:
Raj purchased a bike for Rs. 75000 and he sold it for Rs.55000. Is it the condition of profit or loss? Also, find the profit or loss percentage incurred by him.
Solution:
Given,
Cost price (CP) of the bike = Rs. 75000
Selling price (SP) of the bike = Rs.55000
Here, SP < CP, it is a loss.
Net Loss = CP – SP = 75000 – 55000= Rs. 20000
Now, Raj’s loss % will be-
\(\begin{array}{l}\frac{20000}{75000} \times 100 = \frac{80}{3}\end{array} \)
=26.667%
∴ Loss percent of Raj is 26.667%.
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