finance
Net Profit
The bottom line: what is left after every expense, interest and tax. Belongs to the owners.
Definition
Net profit is revenue minus every possible cost: COGS, operating expenses, depreciation, interest, and income tax. It is the last line of the P&L - the 'bottom line'. Investors, lenders, and owners anchor on it, but it can mislead: a company can show strong net profit while running negative cash flow, which is the real risk. Net profit is also accounting-driven (depreciation schedules, revenue recognition), so it does not always reflect economic reality. As businesses grow the expected percentage drops: a sole proprietor might see 30-40% net margin, a mid-size LLC 8-15%, a public company commonly 5-12%.
In your business
- →Always read net profit alongside cash flow - the gap reveals the truth
- →Healthy benchmark depends on industry, but under 5% is fragile, under 0% is urgent
- →Keep at least 3 months of operating expenses as reserve before distributing net profit