Legal Definitions - net profit

Net profit refers to the final amount of money a business or individual has earned after all operating expenses, interest, and taxes have been subtracted from their total revenue over a specific period. It represents the true financial gain or loss and is often considered the "bottom line" figure on a financial statement.

• Example 1: A Local Coffee Shop

  Imagine "The Daily Grind" coffee shop generates $30,000 in sales revenue during a month. From this, they pay $8,000 for coffee beans and milk, $6,000 for employee wages, $3,000 for rent, $1,000 for utilities, and $2,000 in various taxes. To calculate their net profit, they would subtract all these expenses from their revenue: $30,000 (revenue) - ($8,000 + $6,000 + $3,000 + $1,000 + $2,000) = $10,000. This $10,000 is the coffee shop's net profit for the month, representing the actual money the business has gained after covering all its costs.

• Example 2: A Freelance Web Developer

  A freelance web developer completes several projects in a quarter, earning a total of $15,000 in client fees. During the same quarter, they incur expenses such as $500 for software subscriptions, $150 for internet service, $200 for professional development courses, and $2,500 for self-employment taxes. Their net profit would be calculated as $15,000 (revenue) - ($500 + $150 + $200 + $2,500) = $11,650. This figure is the actual income the developer has earned and can keep after all business-related deductions and taxes are accounted for.

• Example 3: A Small Manufacturing Company

  A company that manufactures custom furniture sells $100,000 worth of products in a fiscal quarter. Their costs include $30,000 for raw materials, $25,000 for factory wages, $10,000 for rent on their workshop, $5,000 for utilities, $3,000 for marketing, $2,000 for loan interest payments, and $8,000 in corporate taxes. Their net profit for the quarter would be $100,000 (revenue) - ($30,000 + $25,000 + $10,000 + $5,000 + $3,000 + $2,000 + $8,000) = $17,000. This $17,000 represents the company's final profit after all operational expenses, financing costs, and tax obligations have been met.