Net Profit

What Is Net Profit?

Net profit — also called the bottom line — is the amount of money remaining after all expenses, taxes, interest, depreciation, and other costs have been subtracted from total revenue. It's the definitive measure of whether your business is actually making money.

The formula: Net Profit = Revenue - All Expenses (including COGS, operating expenses, interest, taxes)

Net Profit vs. Gross Profit

• Gross profit = Revenue - Cost of Goods Sold (only direct production costs)
• Net profit = Revenue - Everything (all costs the business incurs)

A company can have a healthy gross profit but a poor net profit if its overheads, interest payments, or taxes are too high.

Net Profit Margin

Net profit margin expresses net profit as a percentage of revenue:

Net Profit Margin = (Net Profit / Revenue) × 100

Example: Revenue of £500,000 and net profit of £50,000 = 10% net profit margin. For every £1 earned, £0.10 reaches the bottom line.

Why It Matters

Net profit is the ultimate indicator of business viability. It determines:

• How much you can reinvest in growth
• Your ability to service debt and attract investment
• Dividend payments to shareholders
• Your business valuation — many valuation methods are based on multiples of net profit

Improving Net Profit

Focus on both sides of the equation:

• Increase revenue — through pricing, volume, or new products
• Reduce costs — renegotiate contracts, eliminate waste, improve efficiency
• Optimise your tax position — use all available reliefs and allowances
• Manage debt — refinance at lower rates where possible