Net profit, also known as net income, is the amount of money a company earns after deducting all operating, interest, and tax expenses over a given period of time. It is a critical profitability metric for any company and is computed as the residual of all revenues and gains less all expenses and losses for the period. Net profit is different from gross profit, which only deducts the cost of goods sold from revenue.
Net profit is an essential indicator of business profitability and financial health. It tells you how much money you have to pay shareholders, invest, or save, and is also essential for new businesses to break even, as it indicates whether progress is being made. Investors and lenders are very keen on these figures before investing or lending money. Net profit margin is another important metric that measures the profits of a business as a percentage of total revenue. It helps investors assess if a companys management is generating enough profit from its sales and whether operating costs and overhead costs are under control.
To calculate net profit, you can use the following formula:
Net Profit = Total Revenue – (Total Expenses + Taxes + Depreciation)
