Total Profit (Net Income)

What is Total Profit?

Total Profit, also known as Net Profit or Net Income, is the amount of money a company keeps after subtracting all of its expenses from its total revenue. It’s a key measure of a company’s financial health because it shows how much money the company actually makes after covering all its costs.

How to Calculate Total Profit

• Start with Revenue: This is the total income from selling goods or services.
• Subtract Cost of Goods Sold (COGS): This includes the direct costs of producing the products or services sold.
• Subtract Operating Expenses: These are costs related to running the business, like salaries, rent, utilities, and marketing.
• Subtract Interest Expenses: If the company has borrowed money, it needs to pay interest, which should be deducted.
• Subtract Taxes: Finally, account for taxes that the company needs to pay.

The formula for total profit

Total Profit = Revenue − COGS − Operating Expenses − Interest Expenses − Taxes

Why Total Profit Matters

• Profitability: Total profit shows how effectively a company is managing its costs and generating income. A higher total profit indicates a more profitable company.
• Financial Health: It provides insight into the company’s overall financial performance. Consistently high total profit suggests a healthy and efficient business.
• Investor Interest: Investors often look at total profit to gauge a company’s financial strength and potential for growth. It helps them decide whether to invest in the company.

Total Profit vs. Gross Profit

• Gross Profit: This is the money a company makes after subtracting only the cost of goods sold from revenue. It does not account for other expenses like operating costs, interest, or taxes.
• Total Profit (Net Profit): This takes all expenses into account, giving a complete picture of how much money the company has left after covering every cost.

Total Profit vs. Operating Profit:

• Operating Profit: This is the profit earned from the company’s core business activities, before interest and taxes. It excludes any income or expenses not directly related to the main operations.
• Total Profit (Net Profit): This includes all types of income and expenses, such as interest and taxes, providing a full view of the company’s financial outcome.