What is Net Profit?

Net Profit is the amount of money that remains from a business’ revenues after all operating expenses, interest, taxes, and other costs have been subtracted. It is a clear indicator of a company’s financial performance over a specific period, typically measured quarterly or annually.

Unlike gross profit, which only deducts the cost of goods sold from revenue, net profit provides a more comprehensive overview by including all deductions.

How to Calculate

Calculating Net Profit is straightforward with this formula:

Net Profit = Total Revenue – Total Expenses 

Total revenue includes all income from sales, services and other sources, while total expenses encompass operating costs, overheads, interest, taxes and any other expenses incurred.

Here’s a breakdown:

  1. Total Revenue: Sum up all the income your business receives. This could be from sales of products or services, investment income, or other revenue streams.
  2. Subtract Expenses: Deduct all costs associated with running your business. This includes costs of goods sold, salaries, administrative expenses, marketing, rent, utilities, depreciation, interest on debts, and taxes.
  3. Resulting Figure: The figure you are left with is your Net Income.


Net Income is crucial for several reasons:

  • Profitability and Growth: It provides a clear picture of your profitability and the viability of your business model. A consistent Net Income suggests that a business can sustain and potentially expand its operations.
  • Attractiveness to Investors: Investors look at the Net Income to determine the health of a business before committing their money. A healthy net indicates a potentially lucrative investment.
  • Loan Applications: When applying for business loans, lenders will examine your net to assess your ability to repay.
  • Benchmarking and Strategy: It allows you to benchmark against competitors and strategize for improvements. By understanding where expenses can be trimmed without compromising on quality or output, businesses can increase their Net Income.

Contact Us

We are not just accountants; we are Chartered Accountants with one of the most reputable and premium accounting bodies. We are registered and regulated by ACCA; so you can rest assured that you are in good hands. Knowing this, don’t hesitate to get in touch with us if you require assistance: Pi Accountancy | Contact Us