Gross Profit vs. Operating Profit vs. Ne𝕴t Income: An Overview

Gross profit, operating profit, and net income are reflected on a company’s income statement, and each metric represents profit at different parts of the pr🎉oduction cycle and earnings process.

While income indicates a positive cash flow into a business, 澳洲幸运5开奖号码历史查询:net income is a more complex calculation. Profit commonly refers to money left over after expenses are paid, but 澳洲幸运5开奖号码历史查询:gross profit and 澳洲幸运5开奖号码历史查询:operating profit depend on when specific income and expenses a꧂re c🧸ounted.

The Income Statement

All three financial metrics—gross profit, operating profit, and net income—are located on a company’s 澳洲幸运5开奖号码历史查询:income statement, and the order in ⛄which they aไppear shows their significance and relationship.

The top line of the income statement reflects a company’s gross revenue, or the income generated by the sale of goods or services. Using the revenue figure, various expenses and alternate income streams are added and subtracted to arrive at different profit levels.

Gross Profit

Gross profit is the total revenue minus expenses directly related to the production of goods for sale, called the 澳洲幸运5开奖号码历史查询:cost of goods sold (COGS). COGS represents direct labor, direct materials, or 澳洲幸运5开奖号码历史查询:raw materials, and a portion o✃f manufacturing overhead📖 tied to the production facility.

COGS does not include indirect expenses, such as the cost of the corporate office. COGS directly impacts a company’s gross profit, which r𓃲eflects the revenue left over to fund the business after accounting for the costs of production. Gross profit does not account for debt expenses, taxes, or other expenses required to run the company.

Operating Profit

Derived from gross profit, operating profit 澳洲幸运5开奖号码历史查询:is the residual income after all costs have been included. Operating profit is also called operating income or 澳洲幸运5开奖号码历史查询:earnings before interest ꦏand taxes (EB🅘IT). EBIT can include nonoperating revenue, which is not included in ope❀rating profit. If a company doesn’t have nonoperating revenue, then EBIT and operating profit will be the same.

In addition to COGS, 澳洲幸运5开奖号码历史查询:fixed-cost expenses, such as rent and insurance, and variable expenses, such as shipping and freight, payroll and utilities, and 澳洲幸运5开奖号码历史查询:amortization and 澳洲幸运5开奖号码历史查询:depreciation of assets, are included. Operating profit does not account for the cost of interest payments on debts, 澳洲幸运5开奖号码历史查询:tax expenses, or additional income from investments.

Net Income

A company’s profit is called net income or net profit. Since net income is the last line at the bottom of the income statement, it’s also called the 澳洲幸运5开奖号码历史查询:bottom line. Net income reflects the total residual income after accounting for all 澳洲幸运5开奖号码历史查询:cash flows, both positive and negative.

Using the operating profit figure, debt expenses such as loan interest, tax𓃲es, and one-time entries for unusual expenses such as equipment purchases are subtracted. All additional income from secondary operations or investments and one-time payments for things such as the sale of assets are added.

The Bottom Line

Gross profit, operating profit, and net income are shown on a company’s income statement, and each metꦿric represents p🍬rofit at different points of the production cycle.

Gross profit is total revenue minus the cost of goods sold (COGS). From gross profit, operating profit or operating income is the residual income after accounting for all expenses plus COGS. Net income is the bottom line, or the company’s income after accounting for all cash flows, both positive and negative.