What is the difference between gross profit and net profit?

What are gross profit and net profit? What is the difference between them?

Gross profit and net profit are two important financial metrics that measure the profitability of a business. Gross profit measures the profitability of a company's products or services before taking into account certain expenses, such as operating expenses and taxes. Net profit, on the other hand, measures the profitability of a company after all expenses have been accounted for.

How to calculate gross profit:
To calculate gross profit, you start with the company's revenue and subtract the cost of goods sold (COGS). The COGS includes the direct costs associated with producing the goods or services that a company sells, such as the cost of raw materials and labor.

Here's the formula for calculating gross profit:

Gross profit = Revenue - COGS

For example, if a company has revenue of £100,000 and COGS of £50,000, its gross profit would be £50,000 (£100,000 - £50,000).

How to calculate net profit:
To calculate net profit, you start with the gross profit and subtract all other expenses, including operating expenses (such as rent, utilities, and salaries), taxes, and any other costs not included in the COGS.

Here's the formula for calculating net profit:

Net profit = Gross profit - (Operating expenses + Taxes + Other expenses)

For example, if a company has gross profit of £50,000 and operating expenses of £20,000, taxes of £5,000, and other expenses of £10,000, its net profit would be £15,000 (£50,000 - £20,000 - £5,000 - £10,000).


In summary, gross profit measures the profitability of a company's products or services before taking into account certain expenses, while net profit measures the profitability of a company after all expenses have been accounted for.

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