From Wikipedia, the free encyclopedia

Net profit is an accounting term which is commonly used in business. It is equal to the gross revenue for a given time period minus associated expenses.

A common synonym for "net profit" when discussing financial reports (which include a balance sheet and an income statement) is the bottom line. This term results from the traditional appearance of an income statement which shows all allocated revenues and expenses over a specified time period with the resulting summation on the bottom line of the report. Generally speaking, this term is synonymous with both Net Income and Net Profit After Tax.

In simplistic terms, net profit is the money left over after paying all the expenses of an endeavor. In practice this can get very complex in large organizations or endeavors. The bookkeeper or accountant must itemize and allocate revenues and expenses properly to the specific working scope and context in which the term is applied.

The net margin percentage is a related ratio. This figure is calculated by dividing net profit by turnover, and it represents profitability, as a percentage.

Here is how you reach net profit on a P&L (Profit & Loss) account:

Revenue = Price (of product) X Quantity

Minus Direct costs -->

Gross profit = sales revenue – cost of sales

Minus Indirect costs -->

Operating profit = Gross profit – overheads

Plus Redundancy payments, staff restructuring etc & Minus interest payable -->

Pre-tax profit/Net profit = operating profit + one off items – interest payable

Minus Corporation tax -->

Profit after tax = Pre-tax profit – tax

Minus Dividends -->

Retained/Net profit = Profit after tax – Dividends