Profit and profitability, although related, are distinct financial concepts that gauge different aspects of a business's financial health. Profit refers to the net income that a business generates after deducting all costs and expenses, such as operating expenses, taxes, and cost of goods sold, from its total revenue. It's the bottom line or the monetary amount that the business retains after all transactions are accounted for.
Profitability, on the other hand, is a relative concept that measures the efficiency of a business in generating profit. It is typically expressed as a percentage and calculated using various ratios, such as net profit margin, return on assets, or return on equity. Profitability ratios provide insight into how much profit a business generates per dollar of revenue, assets, or equity, providing a more comprehensive view of the business's financial performance than absolute profit alone.
It's possible for a business to make a profit but not be profitable if the profit is not sufficient relative to the resources invested in the business. Conversely, a business can be profitable but not make a profit if it's in the early stages of growth and investing heavily in assets to generate future profits. Hence, both profit and profitability are important for assessing the financial health and long-term viability of a business.