Net profit, also known as net income or net earnings, is the profit earned by a company after all expenses have been accounted for. It is calculated by subtracting the total expenses from the revenue. Total expenses include the cost of goods sold (COGS), operating expenses, interest expense, and tax expense. Net profit is an important metric for a company because it shows the profit earned after all expenses have been accounted for. It is a useful measure of the company's overall financial performance and can be used to assess its profitability. To calculate the net profit, you need to subtract the total expenses from the revenue.
Here's an example:
Suppose a company has the following financials for the year:
Operating expenses: $20,000
Interest expense: $5,000
Tax expense: $5,000.
To calculate the net profit, you would need to subtract the total expenses from the revenue:
Net profit = Revenue - COGS - Operating expenses - Interest expense - Tax expense
= $100,000 - $60,000 - $20,000 - $5,000 - $5,000
Therefore, the company's net profit for the year is $10,000.