In a market economy, modern enterprises, or rather their leaders, must have a mass of knowledge and skills in order to “stay afloat”. Ignorance of the basic rules and laws of doing business leads to disastrous results, and this comes very quickly. In the article below, an attempt will be made to deal with such a concept as net profit - the most important factor that affects the profitability of any enterprise and the analysis of which makes it possible to understand whether it is worthwhile to conduct and develop the business further or to look for other ways to earn money.
In theory, net profit is part of the balance sheet profit of each enterprise, which remains at the disposal of the owners or shareholders after all taxes, fees, deductions and other obligations to the budget have been paid. In most cases, net profit is used in order to increase the working capital of an enterprise, form funds and reserves, and also to make reinvestment in production.
Of course, there is a dependence of the volume of net profit on the volume of gross profit, as well as the magnitude of taxes. In addition, it is on the basis of the amount of available net profit that dividends are calculated for the company's shareholders.
Net profit indicators for each enterprise are very important. Net profit can be considered the result of the enterprise, for the period in which this profit was demonstrated. The net profit indicator is clearly demonstrated by the amount of funds received by the enterprise after paying all tax fees, paying salaries, and also making other payments that are mandatory. It is clear that an increase in net profit means that the company worked well during a certain period and, on the contrary, decreased its performance, and even more so, their departure to “minus” means that certain measures should be taken to prevent bankruptcy. That is why it is important to know how net profit is determined. The simplest instruction for calculating this most important indicator is given below.
- Calculating net profit is not such a difficult task. Initially, you need to determine the time period for which they will be paid.
- In addition to the time period, a person calculating net profit will need a formula according to which all calculations will be made.
- The net profit (PE) of an enterprise can be determined if the indicators represented by gross profit (EP), financial profit (FI), the amount of taxes (CH) paid for the period, and other operating profit (OP) are known.
- The following simple formula is most often used to calculate net profit.
PE = FP + VP + OP - SN
- The calculation of net profit requires the data contained in the financial statements.
- The determination of gross profit, requires data presented by revenue for the determined period and the cost of production. To get gross profit from the first indicator, you need to subtract the second.
- Operating profit is defined as the difference between other operating income and expenses for the period. Financial income is calculated by subtracting expenses from this income from financial income.
- After calculating all the necessary indicators, you can determine the net profit. In the event that the net profit shows an indicator with a “-” sign, it can be stated that the company worked at a loss.
Net profit can be used by the company for any purpose. Most often, by decision of the management, net profit is directed to pay the expenses incurred by the company at the current time. Quite often, net profit accrues or is used for charitable purposes.