Net Profit
Quick Answer: Net profit is revenue minus all expenses, taxes, and interest—often the numerator basis for ROI when measuring true profitability.
Net profit (also net income or bottom line) is the amount of money a business retains after subtracting all expenses from revenue: cost of goods sold, operating expenses, interest, taxes, and other items. It is the profit attributable to shareholders and appears at the bottom of the income statement. For investments, net profit is the gain or loss after all costs.
This page provides a structured explanation of net profit in ROI and financial statements, including formulas, examples, limitations, and comparisons with related financial metrics.
When to Use This Calculation
- Computing ROI on an accounting basis
- Comparing periods under consistent rules
- Linking to investor returns after leverage
Limitations of This Metric
- Accounting profit timing differs from cash flow
- One-time items distort a single period
- Tax rules affect reported net profit
What Is Net Profit?
Net profit is the bottom-line profit after all expenses, including operating costs, interest, and taxes, have been deducted from revenue.
Formula
Net Profit = Revenue − COGS − Operating Expenses − Interest − Taxes − Other Expenses
Or: Net Profit = Gross Profit − Operating Expenses − Interest − Taxes. For a simple investment: Net Profit = Final Value − Initial Investment − All Costs (fees, taxes, etc.).
Example
A company has $1M revenue, $400K COGS, $300K operating expenses, $50K interest, and $75K taxes. Gross profit = $600K. Net profit = $600K − $300K − $50K − $75K = $175K. For an investment: buy at $10,000, sell at $12,000, pay $100 in fees. Net profit = $12,000 − $10,000 − $100 = $1,900.
Relationship to ROI
ROI is often calculated as (Net Profit / Initial Investment) × 100. To get a true ROI, net profit should include all costs: purchase price, fees, taxes, and any other expenses. Excluding costs inflates ROI. Our ROI Calculator uses Final Value − Initial Investment; users should account for fees and taxes separately if they want a fully loaded ROI.
Net Profit vs. Other Metrics
Gross profit = Revenue − COGS; excludes operating expenses. EBITDA = earnings before interest, taxes, depreciation, and amortization; excludes financing and accounting charges. Gross margin = Gross profit / Revenue. Net profit is the most comprehensive measure of bottom-line profitability after all expenses.
Caveats
Net profit can be affected by non-cash items (depreciation, amortization), one-time gains or losses, and accounting choices. For cash-focused analysis, operating cash flow is sometimes preferred. Net profit is reported on an accrual basis; actual cash flow may differ.