Net Profit
Also called: bottom line, net income
What is Net Profit?
Net profit is what remains of revenue after every cost is deducted — direct costs, operating expenses, depreciation, interest and tax. It is the bottom line in the strictest sense, and the figure that ultimately belongs to the owners.
Why Net Profit matters
Net profit is the only measure that says whether the business as a whole made money. Healthy gross margins routinely hide a net loss when rent, salaries and interest are counted properly.
Net Profit formula
Net profit = Gross profit − Operating expenses − Depreciation − Interest − Tax
Expressed over revenue it becomes net profit margin.
How Net Profit works in practice
Read net profit alongside cash flow, not instead of it. A business can be profitable on paper and still be unable to pay salaries if customers have not settled their invoices.
Frequently asked questions
Profit is not cash. Receivables, stock purchases, loan principal repayments and owner drawings all consume cash without appearing as expenses.