How to calculate net profit

Net profit margin

The net profit margin means the percentage of total sales revenue accrued after subtracting costs and costs from them, and is calculated by dividing the net profit or loss achieved by net sales revenue, and the following formula is taken: net profit = net profit or loss ÷ net sales revenue) x 100%

The net margin reveals what the company actually achieved by achieving profit for every dollar, and also indicates the extent of the facility's ability to control its costs and fully control it, in addition to considering the net profit margin as an effective way to compare the conditions of the specialized establishments in In the same context, as the company with the highest profitability imposes its control thanks to its control over costs when compared with other competitors, and the net profit margin plays an effective role in many non-operating expenses in companies, such as benefits and financial compensation.

Net profit can be defined as the gross output of what has been gained from operating profit, after adding other revenues and subtracting other expenses, in addition to deducting Zakat from the total net profit in pursuit of the net operating profit.

How to calculate net profit

To calculate the net profit, it is necessary to find the values ​​of the following equations in order if the value of some equations is lost, namely:
  • Net purchases = purchases - (return on purchases + earned discount).
  • Procurement cost = net purchases + procurement expenses.
  • Cost of sales = first-term goods + cost of purchases - end-of-term goods.
  • Net sales = sales - sales return - allowable discount.
  • Gross profit = net sales - cost of sales.
  • Net profit = gross profit + revenue-expense.

Based on the foregoing, until we reach the net profit, the accountant must increase the total profit to other revenues from other expenses, in the case of increasing it, the profit will be achieved, but if the sum of the total profit decreases with other income over the expenses, the net loss will be achieved.

The difference between gross profit and net profit

The difference lies between the gross profit and the net profit, that the first is what was gained from material profit following the practice of commercial operations between buying and selling, and that is without any deductions on administrative and general expenses and depreciation to reach the total profit, so we resort to open a trading account, with care to close All related restrictions, and accompanying in the right part of it all of the first-term merchandise, purchases, sales returns, permitted deduction, transportation of purchases, and purchase fees for purchases. As for the left part, it includes the creditor side including the returns of purchases and sales and the acquired discount and goods of the last period. The debt owed balance Referring to the loss and creditor is the gross profit, but as for the net profit, it is the net amount that was reached after deducting the general and administrative expenses, depreciation and all related revenues.

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