Net Profit Calculator
Calculation Results
Understanding Net Profit: The Bottom Line
Net profit, often referred to as "the bottom line," is the single most important metric for determining the financial health and sustainability of a business. It represents the actual amount of money remaining after all operating expenses, taxes, interest, and costs of goods sold have been deducted from the total revenue.
The Net Profit Formula
Calculating net profit requires a systematic approach to subtracting various layers of expenses from your total income. The basic formula is:
Key Components Explained
- Total Revenue: All the money generated from sales before any deductions.
- Cost of Goods Sold (COGS): The direct costs attributable to the production of the goods sold by a company (materials and direct labor).
- Operating Expenses: Indirect costs needed to keep the business running, such as rent, utilities, marketing, and office supplies.
- Interest and Taxes: Payments made on business loans and local/federal taxes calculated on your earnings.
Net Profit vs. Gross Profit
It is common to confuse Net Profit with Gross Profit. Gross Profit is simply Revenue minus COGS. It shows how efficiently a company produces its goods but ignores overhead and taxes. Net Profit accounts for every single dollar leaving the business, providing the true final earnings that can be distributed to owners or reinvested.
Real-World Example
Imagine a retail store with the following monthly figures:
| Total Sales Revenue | $100,000 |
| Inventory Costs (COGS) | -$40,000 |
| Rent & Utilities | -$20,000 |
| Loan Interest | -$5,000 |
| Taxes (25% on $35k) | -$8,750 |
| Final Net Profit | $26,250 |
In this scenario, the business has a Net Profit Margin of 26.25% ($26,250 / $100,000). This means for every dollar the store makes in sales, it keeps approximately 26 cents as pure profit.