Net Profit Definition Business Studies
Quick summary: In business studies, net profit represents the final earnings of a business after all costs, taxes, and interest are deducted from total revenue. It is a key measure of financial success and sustainability.
Definition
Net profit (also called net income) is the amount of money a business retains after subtracting all expenses from total revenue. Expenses include operating costs, salaries, rent, utilities, taxes, interest, and any other deductions.
Formula:
Net Profit = Total Revenue − Total Expenses
A positive net profit indicates the business is profitable, while a negative figure shows a loss.
Example Calculation
Example: A business earns $100,000 in revenue and has the following costs:
| Item | Amount ($) |
|---|---|
| Revenue | 100,000 |
| Cost of Goods Sold | 40,000 |
| Operating Expenses | 35,000 |
| Taxes & Interest | 15,000 |
| Net Profit | 10,000 |
Net Profit Margin = (Net Profit ÷ Revenue) × 100 = (10,000 ÷ 100,000) × 100 = 10%
Importance in Business Studies
- Shows the overall profitability of a business.
- Helps evaluate management efficiency and financial health.
- Essential for case studies and exam analysis in business studies.
- Forms the basis for key financial ratios and comparisons.
Related Concepts
- Gross Profit: Revenue − Cost of Goods Sold
- Operating Profit: Gross Profit − Operating Expenses
- Profit margin ratios: Gross, Operating, and Net Profit percentages