Profit and Loss - Learn the Easy Way

 Profit and Loss is an important chapter from bank exams point of view; it is a very basic and commonly used concept in our day to day life.

But mugging up the formulae and mindlessly applying it is not the way to go. We’ll try a different approach to learn the formulae…not the chapter mind you (that you’ll have to do yourself!) …but the formulae!

Let us get the feel of P&L from an easy real life story – starring you!

You buy a 16 GB HP pen drive from Flipkart with a heavy discount, say at Rs. 297; the actual price of the pen drive is about Rs. 850 in the market. Which means you made a profit of Rs. 553 on this deal! Or in other words you bought at a discount of 65%

HA! No wonder you bought it!

Now that you’ve bought the pen drive at Rs. 297, you realize you already have a drawer full of pen drives - so you wish to sell this new one to try and make some money out of it!

How much will you sell it at? At Rs. 297? No! You won’t be making any money then!

Rs. 300? Rs. 500? Well it depends on you how much profit or what % of profit you want to make! But you can’t go above Rs. 850, because that is the market’s rate and no one will pay you more than that!

Suppose, you get hold of a friend and you decide you want to make 50% profit – you’ll sell it at [297 + (50% x 297)] = Rs. 445.50 i.e., Rs. 446, or normally people go for rounded figure, so – Rs. 450!

Thus your Selling price will be Rs. 450 and your profit will be Rs. 153. (in absolute terms)

From this example, do you notice one thing – we calculate our discount/profit/loss on the cost price!

Rs. 850 was the original market price or cost and the discount of 65% was on it to give you the pen drive at Rs. 297.

Rs. 297, hence, was your cost – and you added you required profit of 50% to it, to get your selling price of Rs. 450.

How was the story so far? Knowledgeable, I hope! Now to the old (and gold) formulae -
1. Selling Price = SP
2. Cost Price = CP
3. Loss = L
4. Profit = P

5. SP – CP = P,

   here, it means the selling price is more than the cost price, you bought at 297 and you

   are selling at 450, off course you have a profit!

6. CP – SP = L,
   
     if you are buying at 297 and selling at 200, you will have a loss of Rs. 97!

These two are your basic formulae – all other formulae can be derived from these two formulae.

When you read a question, you’ll have many information like CP, SP, P/L or P/L percent, you might get confused as to what to do with all these figures – I used to get confused!

So, what I did was, I asked the question a question – what do you want? You want me to find loss or loss%? Profit or the cost price?

That takes care of your confusion as to what to find! Then, put down the relevant equation of either Profit/Loss and fit in the given figures in the equation.

No need to mug the formulae.

It’s all do it yourself!

Let us see how -

1. What do you need to find - Selling price

   Cost price is Rs. 80 and required profit % is 135%! (yes! Quite possible!)

        SP – CP = P
=>   SP = P + CP                                     - and Profit = CP x P% (all profit/loss/discount

                                                                   are calculated on cost price please remember!)
=>   SP = (CP x P%) + CP                      - substituting P

=>   SP = CP (1 + P%)                        this is your book formula.

So we get : SP = 80 (1+ 135/100) = Rs. 188.

2. Now if you need to find Cost Price -

    You have been given selling price as Rs. 125 and loss % as 10%

    You know, CP – SP = Loss

    That means the selling price amount will be less than your cost price amount, i.e., it

    will definitely be greater than Rs. 125!

=> CP – SP = CP x L%
=> CP – CP x L% = SP
=> CP (1 – L%) = SP                     now, do you understand how the formulae are derived?

=> CP = SP/ (1-L%)                        book formula!

=> CP = 125/(1 – 10%)
=> CP = Rs. 138.888 or, Rs. 139.

3. Now suppose you have to find profit/loss%

All you have to do is find the profit/loss figure using our golden equations and then USE COST PRICE to find %.

(Profit amount/CP) x 100 = Profit%

(Loss amount/CP) x 100 = Loss%

I’m reminding it again and again, profit/loss % is always calculated on Cost Price. If you have trouble remembering go back to the story of pen drives starring you!

This, my friends, is all there is to learn on Profit and Loss to get you through your banking exams.

• Remember the two basic equations and make your own derived formula to solve problems.
• Ask what the question wants, if in doubt.
• Do not mindlessly mug P/L formulae. You might get confused and end up murdering a simple question!
• Solve a lot of problems using your derived formulae and by the time you are on you 50^th sum, it’s my guarantee you’ll have remembered all the formulae easily and would have created your own short cuts too!