Net profit

Net profit is an existing accounting term   that refers to the difference between income and expenses of any company in a given period. It is also known as the result of the exercise, especially when we make the  income statement .

In practical terms, we could define the net benefit as the amount of money that a company can have after having met its obligations in the form of taxes or expenses.

The mathematical calculation of the net profit is made taking into account that there is first of all an amount of income to which you will have to gradually subtract different items, such as the cost of sales of goods, depreciations, expenses of an operational or extraordinary nature, interest to be paid and due tax obligations.

It is important to  distinguish the net profit from the so-called gross profit , which is defined by the main operations to which a company is engaged and can be positive if there are gains or negative if there are losses. To know the value of the gross profit, it is enough to calculate the difference between the total sales and the cost of said sales.

What makes it different from the net is that it adds the effect of having made payments in the form of taxes and creditors. That is, we would be talking about a result after the gross.

Net profit calculation

The formula is:

Net profit

Gross profit – taxes – interest – depreciation – general expenses

In the financial world, the concept of net profit is often used as a kind of meter on the economic or operational situation of companies. An increase in net profit is often related to increases in shareholder value.

Although the latter is quite common, it does not always occur in this way, since by its own composition the net benefit depends on different variables and the accounting treatment to which they are subjected. In other words, there are several criteria when calculating this result depending on how the accounting variables are arranged.

The net profit in the income statement

The net profit is the final result of the income statement of a company, so it is known as the result of the year:

 Income Statement

Example
   Net income or sales 100
– Direct costs of goods sold -fifty
   Gross margin fifty
– General, personnel and administrative expenses -twenty
   EBITDA  30
– Amortization expenses and provisions -5
   Profit before interest and taxes (BAIT) or EBIT 25
+ Extraordinary income one
– Extraordinary expenses -two
   Ordinary result 24
+ Financial income two
– Financial expenses -3
   Profit before tax (BAT) or EBT 2. 3
– Corporation tax 7
   NET PROFIT OR FINANCIAL YEAR RESULTS 16

 

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