Table of Contents

How Gross, Operating, and Net Profit Differ

By

澳洲幸运5官方开奖结果体彩网:Will Kenton

Updated June 06, 2025

Reviewed by

David Kindness

Fact checked by

Suzanne Kvilhaug

Definition

Gross profit, operating profit, and net profit are included on a company's income statement.

What Is Profit?

Profit describes the financial gain when a company's revenue exceeds expenses. For accounting purposes, companies report gross profit, operating profit, and net profit. These three types are affected by taxes, depreciation, and interest expenses.

Key Takeaways

Companies can distribute profits to shareholders as dividends or reinvest them back into the business.
Gross profit equals sales minus the cost of goods sold.
Operating profit accounts for expenses like overhead and depreciation.
Net profit is also referred to as the "bottom line."

How Profit Is Calculated

Profit is the money a business pulls in after accounting for all expenses. Whether it's a lemonade stand or a publicly-traded multinational company, the primary goal of any business is to earn money.

Some analysts look at top-line profitability, whereas others are i♈nterested in profitability before taxes and other expenses.🌠 Still others are only concerned with profitability after all costs have been paid.

The three major types of profit are gross profit, operating profit, and net profit, found on a company's 澳洲幸运5官方开奖结果体彩网:income statement. Each profit type provides analysts with more information about a compa𓆉ny's performance compared to competitors.

Fast Fact

The word “profit” comes from the Latin noun profectus, meaning “progress,” and the verb proficere, meaning “to advance.”

Gross Profit

The first level of profitability is gross profit, which equals sales minus the cost of goods sold. Sales are the first line item on the income statement, and the 澳洲幸运5官方开奖结果体彩网:cost of goods sold (COGS) is generally listed just below it:

Gross Profit = Revenues - COGS

For example, if Company A has $100,000 in sales and a COGS of $60,000, it means the gross profit is $40,000, or $100,000 minus $60,000. Divide gross profit by sales for the 澳洲幸运5官方开奖结果体彩网:gross profit margin, which is 40%, or $40,000 divided by $100,000.

Operating Profit

Operating profit removes operating expenses such as overhead and other indirect costs, as well as accounting costs like 澳洲幸运5官方开奖结果体彩网:depreciation and amortization. 澳洲幸运5官方开奖结果体彩网:Operating profit is sometimes referred to as earnings before interest and taxes, or EBIT.

Operating Profit = Revenue - Cost of Goods Sold (COGS) - Operating Expenses - Depreciation & Amortization

Net Profit

Net Profit = EBIT - Interest Expense - Taxes

Net profit removes the costs of interest and taxes paid by the business. Because it falls at the bottom of the income statement, it is sometimes referred to as the firm's "澳洲幸运5官方开奖结果体彩网:bottom line."

The bottom line shows how profitable a company was during a period and what is available for dividends and retained earnings. What's retained can be used to pay off debts, fund projects, or reinvest in the company.

Important

An increasing botto🥃m line is a sign that a compaꦆny is growing, while a shrinking bottom line could be a red flag.

How Do Public Companies Report Profit?

The U.S. Securities and Exchange Commission requires public companies to disclose their financial statements in an annual report on 澳洲幸运5官方开奖结果体彩网:Form 10-K. The form gives a detailed picture of a company’s operating and financial results for the fiscal year.

What Is the History of Profit?

In a 澳洲幸运5官方开奖结果体彩网:capitalist system where firms compete with one another to sell their goods, profits have been studied by economists. 澳洲幸运5官方开奖结果体彩网:Karl Marx argued that profits arise from surplus labor extracted from workers by business owners. Modern thinkers suggest that profits compensate for the risk that entrepreneurs take on when starting a business. Others argue that profits arise from 澳洲幸运5官方开奖结果体彩网:inefficient markets and 澳洲幸运5官方开奖结果体彩网:imperfect competition.

What Is the Corporate Tax Rate on Profits?

In 2025, the corporate tax rate on profits is 21%, reduced from 35% in the 2017 澳洲幸运5官方开奖结果体彩网:Tax Cuts and Jobs Act.

The Bottom Line

Profit is usually measured as revenue minus expenses. Companies can further calculate profit, accounting for specific costs. Gross profit is the amount a business has earned minus the direct costs of manufacturing. Operating profit is the gross profit minus operational expenses. Net profit is what remains after the business accounts for all deductions, including interest and taxes.

Article Sources

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Makadok, Richard. "." Journal of Management. Vol. 37, No. 5. 2011. Pages 1316-1334.
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