Net Profit

Business, Legal & Accounting Glossary

Definition: Net Profit

Net Profit

Quick Summary of Net Profit

Sales minus cost of sales minus all administrative and selling costs.

What is the dictionary definition of Net Profit?

Dictionary Definition

Net profit is the gross profit (revenue minus cost of goods) minus operating expenses and all other expenses, such as taxes and interest paid on debt.

Full Definition of Net Profit

A company’s net profit is the amount of money left over after all expenses have been paid. Consider net profit to be your paycheck: it is the money left over after all taxes and benefits have been deducted.

Net profit, which appears on the last line of the income statement, has an impact on a company’s “take-home” profit.

Net profit is also known as:

  • the bottom line
  • net income
  • net earnings

Examples of Net Profit in a sentence

Net profit was up 26.3%.
In the first quarter, net profit more than doubled to 2.34 million pounds.
The net profit was up 10 percent on sales.
The balance of the profit and loss account represents the net profit or loss for the accounting period.
Analysts believe the company’s net profit has probably halved within the last year, to around 200 million dollars.
The net profit margin is around 2.4 to 2.6 percent.
Can you tell me the company’s net profit for the last quarter?
Fujitsu stated that it had expected to break even in 1993-94, with nil net profit.
The preliminary figures were well below many analysts’ predictions at just 146 million in net profit.
Qualicorp have announced a net profit of just £19,312 for last year.

Synonyms For Net Profit

net income, bottom line, net result, net earnings, net gain

Net Profit FAQ's

What Does Net Profit Show?

The source of compensation for a company’s shareholders is net profit. If a company cannot generate enough profit to compensate its owners, the value of its stock will fall. Higher stock prices should result if a company is healthy and growing (with increased profits).

How to Calculate Net Profit

Calculating net profit requires deducting the following from the company’s total revenue:

  • All operating expenses
  • Interest
  • Taxes
  • Preferred stock dividends (but not common stock dividends)
When Do I Use Net Profit?

When companies publish their income statements each fiscal quarter, shareholders can see net profit. Net profit is significant because it is used to compensate a company’s shareholders. If a company cannot generate enough profit to compensate its owners, the value of its stock will fall. Higher stock prices will result if a company is healthy and growing (with increased profits).

Companies will always be looking for ways to improve their net profit, whether by increasing revenue or cutting costs, because changes in net profit are constantly scrutinised.

In general, when a company’s net profit is low or negative, a variety of issues may be to blame. These range from declining sales to poor customer service to poor expense management.

When to Avoid Using Net Profit

Because net profit varies greatly across industries, it should not be used to compare companies. In these cases, considering net profit as a percentage of sales would be more appropriate.

Net profit should also not be used to determine how much money a company earned in a given period. This is because the net profit formula takes into account non-cash expenses such as depreciation.

Take note: To find out how much cash a company generates, look at the cash flow statement.

Why Is Net Profit Margin Important?

Net profit margin is useful for two main reasons:

1. Displays Growth Trends

When reviewing a company’s profit over a specific time period, the net profit margin is an easy number to examine. Looking at a 5-year period, for example, can reveal growth trends within the company.

2. Offers a More Accurate Reference for Profitability

The net profit (represented by a dollar amount) can vary greatly between large and small businesses. Net profit margin, by providing a percentage, provides a better reference for comparing the profitability of different companies.

Cite Term

To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
Modern Language Association (MLA):
Net Profit. Payroll & Accounting Heaven Ltd.
April 18, 2024
Chicago Manual of Style (CMS):
Net Profit. Payroll & Accounting Heaven Ltd. (accessed: April 18, 2024).
American Psychological Association (APA):
Net Profit. Retrieved April 18, 2024
, from website:

Definition Sources

Definitions for Net Profit are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 26th January, 2022 | 0 Views.