Net Profit Definition Business GCSE
Quick summary: For GCSE business students, net profit is the amount of money a business keeps after all costs, taxes, and interest have been deducted from total revenue. It shows whether the business is profitable.
Definition
Net profit, sometimes called “net income,” is the final profit after subtracting all expenses from total revenue. This includes operating costs, salaries, rent, utilities, interest, and taxes.
Formula:
Net Profit = Total Revenue − Total Expenses
A positive net profit indicates profit, while a negative figure indicates a loss.
Example Calculation
Example: A small business earns £50,000 in sales revenue and has the following costs:
| Item | Amount (£) |
|---|---|
| Revenue | 50,000 |
| Cost of Goods Sold | 20,000 |
| Operating Expenses | 15,000 |
| Taxes & Interest | 5,000 |
| Net Profit | 10,000 |
Net Profit Margin = (Net Profit ÷ Revenue) × 100 = (10,000 ÷ 50,000) × 100 = 20%
Why Net Profit is Important
- Shows the true profitability of a business.
- Helps students understand financial performance for GCSE exams.
- Used to compare with competitors and industry standards.
- Informs decisions about reinvestment, expansion, and dividends.
Related Concepts
- Gross Profit: Revenue − Cost of Goods Sold
- Operating Profit: Gross Profit − Operating Expenses
- Profit margin ratios: Gross, Operating, and Net Profit percentages