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What is Net Profit?

Net profit is the amount of money a business earns after deducting all expenses — cost of goods sold, operating costs, interest, taxes, and depreciation — from total revenue. Also called net income or the bottom line, it is the final profitability figure on the income statement.

Net profit answers the most important question in business: after everyone is paid, how much is left? It is calculated as Revenue minus all expenses. If the number is positive, the business is profitable. If negative, it is operating at a loss. Investors, lenders, and owners all look at net profit because it is the clearest single measure of whether a business model works.

Net profit is not the same as cash in the bank. Non-cash expenses like depreciation reduce net profit without moving cash. Similarly, a loan repayment moves cash but does not affect net profit. This is why a profitable business can run out of cash, and a cash-rich business can be unprofitable — the two tell different stories.

Example

A graphic designer earns €60,000 in revenue. After deducting software subscriptions (€1,200), marketing (€3,000), office rent (€8,400), and taxes (€9,000), the net profit is €38,400 — the number that tells her whether the business is sustainable.

Questions

What is the difference between gross profit and net profit?

Gross profit is revenue minus only the direct cost of goods sold (materials, labour to produce). Net profit is revenue minus ALL expenses — including rent, salaries, marketing, interest, and taxes. Gross profit shows whether your pricing covers production costs; net profit shows whether the whole business makes money.

Is net profit the same as cash flow?

No. Net profit is an accounting measure that includes non-cash items like depreciation. Cash flow tracks actual money moving in and out. A business can be profitable on paper and still run out of cash if customers pay slowly or if it invests in equipment.

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