How is net profit computed?

Net profit is computed by subtracting total expenses from total revenue. This financial metric reflects the profitability of a business, indicating how much money remains after all costs associated with running the business have been deducted from the income generated.

Total revenue represents the total amount of money earned from sales of goods and services, while total expenses encompass all costs incurred during the process of earning that revenue, including operating expenses, interest, taxes, and depreciation. When you subtract total expenses from total revenue, the resulting figure represents the net income or profit that the business has made over a specific period.

This calculation is essential for assessing the financial health of the business, enabling managers and stakeholders to understand how effectively the company is generating profit from its operations.