Question

What is net profit?

Answer 1

Net profit (also called net income or the "bottom line") is the amount of money a business keeps after it has paid all of its costs and expenses. It shows the company’s true profit for a period.

Key points
- Basic formula: Net profit = Total revenue − Total expenses.
- Total expenses include cost of goods sold (COGS), operating expenses (salaries, rent, utilities, marketing), depreciation and amortization, interest, taxes, and any one‑time gains or losses.
- Net profit margin = (Net profit ÷ Revenue) × 100%, which shows profitability as a percentage of sales.

Short example
- Revenue: $200,000
- COGS: $80,000
- Operating expenses: $50,000
- Interest and taxes: $15,000
Net profit = $200,000 − ($80,000 + $50,000 + $15,000) = $55,000
Net profit margin = $55,000 ÷ $200,000 = 27.5%

How it’s used
- Measures overall profitability and efficiency.
- Used by investors, managers and lenders to compare companies or track performance over time.

Limitations
- Affected by accounting methods, one‑time items, and non‑cash charges (depreciation/amortization).
- Does not equal cash flow; review operating cash flow for cash profitability.

If you want, I can show how net profit looks on an income statement, calculate net profit from your numbers, or explain differences between gross, operating, and net profit.