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Net Profit

Date created: Oct 12, 2022  •   Last updated: Mar 18, 2024

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.

Net Profit Formula

ƒ Sum(Revenue
Description: Revenue is defined as the income generated through a business’ primary operations. It is often referred to as “top line” and is shown at the top of an income statement.
) - Sum(Operating Expenses
Description: Operating Expenses are the expenditures that are not directly associated with the production of goods and services. For example: Sales & Marketing costs, Administrative salaries, Research & development costs, as well as any other non-direct costs, are classified as operating expenses.
) - Sum(COGS
Description: The Cost Of Goods Sold (COGS) is the measure of direct costs incurred by a company to manufacture or deliver their product or service. Costs typically include raw material and direct labour, but this varies from business to business, depending on the products or services that are being sold. COGS is the building block to understanding Gross Margin and Gross Margin Percent.
) + Sum(Other Revenue
Description: Revenue is defined as the income generated through a business’ primary operations. It is often referred to as “top line” and is shown at the top of an income statement.
) - Sum(Other Expenses
Description: Non-Operating Expenses is the sum of all expenses that are unrelated to core business operations. This includes interest payments, losses due to disposition of assets, reorganizing costs, and charges on obsolete goods or inventory. Non-Operating Expenses is usually non-recurring and does not include day-to-day business costs.
)

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.

Start tracking your Net Profit data

Use Klipfolio PowerMetrics, our free analytics tool, to monitor your data. Choose one of the following available services to start tracking your Net Profit instantly.

Xero
Xero
QuickBooks
QuickBooks
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How to visualize Net Profit?

Use a summary chart to visualize your Net Profit data and compare it to a previous time period.

Net Profit visualization example

Net Profit

$99k

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4.76

vs previous period

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Summary Chart

Here's an example of how to visualize your current Net Profit data in comparison to a previous time period or date range.
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Net Profit

Chart

Measuring Net Profit

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More about Net Profit

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.

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Start tracking your Net Profit data

Use Klipfolio PowerMetrics, our free analytics tool, to monitor your data. Choose one of the following available services to start tracking your Net Profit instantly.

Xero
Xero
QuickBooks
QuickBooks
Klipfolio dashboard image

Metrics related to Net Profit

Earnings Before Interest, Taxes, Depreciation, and AmortizationCost Of Goods SoldGross Profit

Comparisons

Gross Profit vs Net ProfitRevenue vs Net Profit

Related Tags

Finance
Fundamental
Top 5 Finance
Chief Financial Officer
Financial Analyst
Accountant
Controller
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