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# What does a negative profit variance mean?

Updated: 11/1/2022

Wiki User

13y ago

From a statistical sense, variance is basically a measure of how spread out the data is from the mean (center) observation. For example, if a company has a mean profit of \$100 from all their sales, then we might compute the variance which say for sake of argument is \$16. Then what we would do is use the variance number and take the square root to find what is called the standard deviation. In this case the standard deviation would be \$4. (The square root of \$16).

Then we could say that we are 68% sure that the true profit is within the range of the mean plus or minus the standard deviation. In our example, we would have the range as being 100-4=96 to 100+4=104. So we can say that we are 68% sure that the true profit is within (\$96, \$104)

This could be extended further for more confidence...

This is just an example of how we use variance. Just think of it as spread.

As for negative profit variance..I think that would simply mean that we are looking at loses. It would be similar to above example, example that our average would be -\$100 instead.

Wiki User

13y ago