What is Net Profit?
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.Alternate names: Net Income, Net Earnings, Bottom Line
How to calculate Net Profit
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.
More about this metric
Net Profit, also known as Net Income, is a key indicator of operating efficiency and is often referred to as the bottom line. As a rule, the higher the net income, the better the operating efficiency will be. Analysis of the net profit should be closely linked to critical components, such as the value of operating income, R&D expense, the value of other gains and potentially the stage of growth the company is in. To calculate this metric, expenses to be deducted include Cost of Goods Sold (COGS), all operating expenses, taxes, interest costs, and all other non-operating costs.
Metrics related to Net Profit
Earnings Before Interest, Taxes, Depreciation, and Amortization
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is one of a few profit metr...
Cost Of Goods Sold
The Cost Of Goods Sold (COGS) is the measure of direct costs incurred by a company to manufacture or...
Gross Profit is the amount left over from total revenues after Cost of Goods Sold (COGS) has been de...