Gross Profit vs Net Profit

Gross Profit

Net Profit

What is it?

Gross Profit is the amount left over from total revenues after Cost of Goods Sold (COGS) has been deducted. COGS will typically include the cost of making and selling the product or the cost of services provided by the company.

Net profit is the value that remains after all expenses are subtracted from the company’s total income. It is one of the best ways to determine a business' profitability and is often referred to as the bottom line.

Who is it for?

Chief Financial Officer

Financial Analyst

Accountant

Chief Financial Officer

Financial Analyst

Accountant

Formula

ƒ Sum(Revenue) - Sum(COGS)

ƒ Sum(Total Revenue) - Sum(Total Expenses) + Sum(Other Revenue) - Sum(Other Expenses)

Example

An Oil & Gas company generated a total revenue of $1 million in 2019, and incurred a COGS of $400,000 in that same year. Therefore, the company's gross profit for 2019 was $600,000.

A software company sells software and ongoing product maintenance. They earned $3M of Revenue in the fiscal year. In the same year, the company sold a pile of office furniture which netted a gain on disposal of assets in the amount of $0.5M. All other annual costs, such as salaries, wages for seasonal contractors, commissions for agents, office rent, utilities, software subscriptions, office supplies, income tax, and interest costs totaled $1.5M. The Net income for this company for the current fiscal year is $2M: $3M Revenue - $1.5M OPEX + $0.5M Gain on assets.