Fundamental AnalysisLesson 25 of 100About 5 minutes

Net Profit

Net profit tells you how much money a company keeps after paying for operations, financing, and taxes.

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Introduction

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.

  1. 1.What is net profit?
  2. 2.Which formula is used for net profit?
  3. 3.If revenue is ₹12 lakh and total expenses are ₹9 lakh, what is net profit?
  4. 4.Can a company have high revenue but low or negative net profit?
  5. 5.Why is net profit important for investors?

Answer all five questions to see 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.