6 Difference Between Gross profit and Net Profit

Gross profit and Net profit are very important to keeps eyes on the performance, profit and loss of the business. Bothe Gross profit and the net profits helps the business owners to make the annual income Gross profit are the profit which lefts after statement. Gross profit and net profit is interrelated to each other. Gross profit is the profit which lefts after deducting the cost of goods sold from the revenue. And net profit is the profit which lefts after the deduction of operation expenses and taxes from the gross profit.

To run a successful business owner should have good knowledge of gross profit and net profit. In this article we will discuss in detail about gross profit and net profit in detail. We will also discuss the differencee between gross profit and net profit and many other aspects which are related to the gross profit and net profit.

Gross profit vs Net profit

Sr. No.	Gross Profit	Net Profit
1	Calculated after the deduction of manufacturing experience from the total revenue.	Calculated by the deduction of operating expenses and taxes.
2	Helps to decrease the production cost which helps to increase profits.	Used to find the proficiency of the business.
3	Used to find estimate profit.	Used to find actual profit and the earning for the specified period.
4	Don’t provide actual profit so it is not used to make the strategies.	Net profit is used to make the effective strategies.
5	Compares the overhead cost.	Comprises operating expenses interest and taxes.
6	Calculated as = revenue –COGS.	Calculated as = Gross profit – operating expenses and taxes.

Gross profit.

Main purpose of any kind of business is to sell their products and the services. All businesses generate the revenue by the selling of services, goods and the products. Gross profit is the profit or amount left after the deduction of the cost of the goods sold (COGS). Revenue is defined and the money earned by selling products in specific period. COGS is the cost which is used for the production of the products. COGS include these items

1. Labor used for the production.
2. Raw material cost.
3. Repair expenses.
4. Transportation cost.
5. Machinery and equipment cost.
6. Other production utilizes.

Gross profit denotes the company’s efficiency to produce the products from the use of raw material, labor and other production utilities. Gross profit helps to decide the price of the products. By the gross profit any can easily calculate the net profit. In simple words gross profit is the profit before subtracting the operation expenses.

Gross profit calculation

Gross profit = Revenue – COGS

For example

Ravi’s company generates total revenue 1000000

And the COGS is 400000

In this case gross profit is

= 1000000-400000

= 600000

This is the example of the Gross profit.

Net profit

Net profit is the amount left after the deduction of the operating expenses, interest and taxes from the gross profit. Net profit is the bottom line in the income statement because it’s a component of loss and profit.

Operating expenses

Operating expenses are the expenses which are running in Nature. These are the expenses which have to be paid on monthly or timely.

Some examples of operating expenses are

1. Salary
2. Rent
3. Depreciation
4. Utilities

Net profit is used to determine the total profitability of the company. It also indicates the ability of the business to convert sales to profit. Net profit helps the companies to make annual income statement, this statement helps to make the effective strategies to generate the more profits and the revenue.

Net profit calculation

Net profit = gross profit – expenses.

For example

We have gross profit in Ravi’s case was = 600000

1. Total rent = 50000
2. Utilities = 5000
3. Salary = 100000
4. Office experience = 6000
5. Depreciation= 4000
6. Interest = 20000
7. Tax 45000

All expenses (50000+5000+100000+6000+4000+20000+45000 = 230000

So, the net profit = 600000-230000 = 370000

Main differencee between Gross profit and net profit

1. Gross profit is calculated after the deduction of manufacturing experience from the total revenue. Net profit is calculated by the deduction of operating expenses and taxes.
2. Gross profit helps to decrease the production cost which helps to increase profits. Net profit is used to find the proficiency of the business.
3. Net profit is used to find actual profit and the earning for the specified period. Gross profit is used to find estimate profit.
4. Gross profit don’t provide actual profit so it is not used to make the strategies. While net profit is used to make the effective strategies.
5. Gross profit compares the overhead cost. while net profit comprises operating expenses interest and taxes.
6. Gross profit is calculated as = revenue –COGS. Net profit is = Gross profit – operating expenses and taxes.

Conclusion

Bothe Gross profit and net profit is very essential for the business management and strategies. Gross profit helps to maintain the cost of the products. Gross profit is depends on the cost of the sold goods. If the cost of the product increases gross profit decreases. Net profit is used to make the business strategies. Net profit is the actual calculation of the profit.

This is all about the differencee between gross profit and actual profit. We hope you understand the topic very well. If you have any doubts please feel free to comment on us. For more interesting topics like this please go through our website.