Introduction:
In the context of profit and loss, the percentage of profit or loss is always calculated against the cost price and not against the selling price. This is because the cost price is the original amount invested or spent on a product, while the selling price is the final amount received after selling the product. By calculating the percentage of profit or loss against the cost price, we can determine the efficiency or effectiveness of a business transaction.

Understanding Profit and Loss:
Profit and loss are financial terms that indicate the amount of money gained or lost in a business transaction. The cost price (CP) is the amount at which a product is purchased, and the selling price (SP) is the amount at which the product is sold.

Calculating Profit:
Profit is the positive difference between the selling price and the cost price. It can be calculated using the following formula:
Profit = Selling Price - Cost Price

Calculating Loss:
Loss is the negative difference between the selling price and the cost price. It can be calculated using the following formula:
Loss = Cost Price - Selling Price

Calculating Percentage of Profit or Loss:
To determine the percentage of profit or loss, we need to calculate the profit or loss amount first. Once we have the profit or loss amount, we can calculate the percentage using the following formulas:

Percentage of Profit = (Profit / Cost Price) * 100
Percentage of Loss = (Loss / Cost Price) * 100

Why Percentage against Cost Price:
The percentage of profit or loss is always calculated against the cost price because it provides a meaningful measure of efficiency and profitability. Here's why:

1. Consistency: Calculating the percentage against the cost price ensures consistency in analyzing different transactions. It allows for easy comparison between different products or business deals.

2. Original Investment: The cost price represents the original investment made on a product. By comparing the profit or loss against this investment, we can assess the success or failure of the transaction.

3. Profitability Analysis: Calculating the percentage against the cost price helps in determining the profitability of a business. It gives a clear picture of how much return is generated for each unit of investment.

4. Decision-making: Businesses use the percentage of profit or loss to make informed decisions. By calculating the percentage against the cost price, they can evaluate the profitability of different products or services and make strategic choices accordingly.

5. Performance Evaluation: By comparing the percentage of profit or loss against the cost price, businesses can evaluate the performance of different departments, products, or services. It helps in identifying areas of improvement and optimizing the overall profitability.

Conclusion:
The percentage of profit or loss is always calculated against the cost price because it provides a consistent and meaningful measure of efficiency and profitability. By comparing the profit or loss against the original investment, businesses can make informed decisions, evaluate performance, and analyze profitability. Calculating the percentage against the selling price would not provide the same level of insight and analysis.