Net profit is the amount of money a business earns after paying out all operating costs and taxes.
Net profit is a key metric that gives a business insight into its financial health. It measures the amount of money that business makes after removing other costs, including operating costs, taxes, and interest. Essentially, it tells the business how much money they’re earning compared to how much money they’re spending.
Net profit is closely related to other financial metrics, such as cost of goods sold (COGS) and gross profit. If a business makes a total of $10,000 in a given period, but their COGS — the money it takes to manufacture the products — is $4,000, then their gross profit is $6,000.
After subtracting operating costs, such as rent, utilities, employee salaries, and taxes, the business might be left with $2,000. That number is their net profit.
Where gross profit evaluates a business’ profitability, net profit helps the business assess its actual performance.