Net profit is the profit resulting after making the corresponding discounts.
Net profit is the profit obtained after making the corresponding discounts . It is about the specific utility that the subject or the company receives in hand.
Utility is the interest or benefit obtained from something. The concept comes from the Latin utilĭtas , which means "useful quality" . Specifically, we can add that it is made up of the following parts: uti , which is synonymous with "being able to be used" ; -ilis , which is indicative of "possibility" ; and the suffix -dad , which is equivalent to "quality" . This term is widely used in the field of economics and finance to name the profit that is achieved from an asset or an investment .
Net , on the other hand, is an adjective used to refer to a resulting and clean quantity (in the sense of being well defined). In addition to the above, we can determine that it is a word that has its etymological origin in French. Thus, we discover that it emanates from the word net , which can be translated as "without stains, clean."
Net Profit Example
A company prepares the monthly balance with a record that indicates income of 100,000 pesos . Said money has indeed entered the company's coffers, but that does not mean that everything is profit. The company also has expenses to bear, such as paying taxes, purchasing raw materials, etc. The net profit will be the amount that results from subtracting these expenses from the income . If the entity had expenses of 60,000 pesos , the net profit for the period was 40,000 pesos (the 100,000 pesos of income minus the 60,000 pesos of expenses).
This allows us to infer that a company can increase its net profit without needing to increase its income, since it would also achieve this if it manages to cut its expenses.
Net income can be increased by increasing revenues or reducing expenses.
Difference with gross profit
Sometimes net profit is confused with profit or gross profit, but it must be clear that they are different. Thus, gross profit is obtained by subtracting from a company's income from the sale of services and goods what would be the money it costs to produce them.
This utility also does not make use of general expenses or financial costs, such as interest payments established on debts or taxes.
Both types of profit can be vital when it comes to determining the success of a company. In the same way, they are also used to show the vulnerability of any entity. Specifically, when we say vulnerability we are referring to the capacity it may have to deal with each and every one of the effects, adverse or not, that may occur at a given time and among which would be crisis situations. .