Net profit definition
/What is Net Profit?
Net profit is the result after all expenses have been subtracted from revenues. This figure is the aggregate result of all operating and financing activities of an organization. As such, it is routinely relied upon by investors, creditors, and lenders to make decisions about how to deal with a firm. Net profit is also called the bottom line, because it is positioned at the bottom of the income statement.
How to Calculate Net Profit
To calculate net profit, subtract the cost of goods sold, operating expenses, financing costs, and tax costs from net revenues. The calculation is as follows:
Net revenues - Cost of goods sold - Operating expenses - Financing costs - Tax costs = Net profit
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The Interpretation of Financial Statements
Net Profit vs. Net Cash Flow
Net profit is not the same as net cash flows, which appears in the statement of cash flows. Differences between net profit and net cash flows include timing issues related to accrual-basis accounting and the reduction of cash flows caused by expenditures for fixed assets.