The single most-watched profit number. Net profit is what a business actually kept from everything it sold, after every cost is paid. The final answer on whether the business is making money.
Definition
Net Profit - revenue minus every cost, including direct production costs, operating expenses, interest payments, and taxes. The bottom line on a profit and loss statement (P&L).
Formula
Net Profit = Revenue − COGS − Operating expenses − Interest − Taxes Net margin = Net Profit ÷ Revenue × 100%
Common uses
- Owner reinvestment - what funds growth, debt repayment, savings, or distributions
- Business valuation - sale prices are often quoted as a multiple of net profit (or a normalized version)
- Tax filings - the basis for income tax
- Lender conversations - banks evaluate creditworthiness against net profit trend
Watch out
Net profit is NOT cash. A business can report strong net profit and still run out of cash because of timing, working capital, and non-cash expenses. Always reconcile profit to cash before spending against it.
For the full explanation, see Net Profit Explained.