Net Profit
Net profit tells you how much money a company keeps after paying for operations, financing, and taxes.
Start the lessonIntroduction
What net profit tells you
A company earns revenue from selling products or services. But that is not the same as the actual profit left in the business. Net profit shows what remains after the company pays for materials, salaries, rent, interest, taxes, and other costs.
The short answer
If a company earns more than it spends after all costs, it has positive net profit. If it spends more than it earns, it may show a net loss.
Formula
Net Profit = Revenue − Total Expenses
The basic idea is simple: subtract the company's total costs from its total sales. But in real companies, total expenses may include cost of goods sold, employee costs, marketing, interest, depreciation, and tax.
Example
₹12 lakh revenue − ₹9 lakh expenses = ₹3 lakh net profit
Quick example
Try the net profit formula
Revenue
₹12,00,000
Expenses
₹9,00,000
Net profit
₹3,00,000
Common mistakes
Reading net profit correctly
Confusing revenue with profit
High sales do not automatically mean high net profit. A business can earn a lot but still have thin margins.
Ignoring one-time items
One-off gains or losses can make net profit look unusually high or low for a year.
Forgetting that net profit is not cash
A company may report profit on paper but still face cash-flow pressure.
Key points
Why net profit matters
- Net profit is what remains after all expenses are deducted.
- It helps show whether the business is truly generating profit.
- A growing net profit often signals improving efficiency or scale.
- Investors usually compare net profit over time and against peers.
Test yourself
5-question quiz
Choose one answer for each question, then check your score.
Previous lesson · 24 of 100
Revenue
Review how a company generates revenue before cost analysis.
Next lesson · 26 of 100
EPS
Learn how earnings are spread across shares and what EPS tells investors.