Net Profit is used to calculate how much a company has earned. If the company is in losses or profits.
In business, we use the term Net Profit to refer to the company’s total profit after they have taken all the total expenses into account.
Expenses create an impact on the company’s net profit. These expenses can include product or service taxes, taxes fees, operational costs, etc. Net profit can also be called as Net Income.
What Is Revenue?
Revenue is a company’s total receipts given for a period. Revenue contains the actual amount of money an organization makes(collects) in a period of time. These includes cash, credit cards, etc. Revenue is sometimes referred to as Gross profit.
What Are Expenses?
Expenses are all the outflows of cash from the company. It’s how much the company is spending togenerate revenue. Common expenses can include payments to suppliers, employee wages, discounts, factory leases and many more. Also, the depreciation of equipment is included in expenses.
How To Calculate Net Profit?
Net profit is amount left after deducting Expenses from the Revenue collected. The formula for calculating Net Profit is:
Net Profit = Total Revenue – Total Expenses
Example
Consider you run an organic food company. The company earns total revenue of $80,000. You don’t keep all the cash because you have to pay to your employees, buy raw material has utility expenses, etc. Let’s say your whole expenses consist of the amount which is $50,000. Now you will apply the formula as
Net Profit= Total Revenue[$80,000] – Total Expenses [$50,000]
Net Profit = $30,000
A company that has more Expenses than Revenue will have a Negative Profit which is also called Loss!
