If you are the owner of your small business, the most important indicator for you is the net profit that it brings to you. Indeed, net profit is directly the money that your business has brought to you, and which you can dispose of at your own discretion. This means that this indicator is extremely important to determine before calculating economic efficiency. Efficiency , on the other hand, is nothing more than the ratio of net profit to cash investment.
As you might guess, it’s not enough just to deduct expenses from your income to determine how much net money you have left in your hands, because you also need to take into account a few important factors. In fact, all this is done quite easily, and if you still do not know how to calculate net profit, then in a few minutes this process will become elementary for you.
So, first you need to determine the gross profit, also known among the people, as just a profit. There is nothing complicated in calculating profits. If you know the cost of production, then it is enough to subtract the cost from the price and multiply by sales. If you did not take into account when calculating the cost of fixed costs, such as depreciation, rent, managers' salaries, and so on, then you must also subtract them from the resulting total amount. The result obtained is the gross profit with which we have to work before calculating the net profit.
Now one needs to subtract or add the following indicators from gross profit: financial profit, other operating profit, and also, of course, tax deductions. Financial profit - this is the profit that the company received, but which is not directly related to its core business. To make it easier to understand, these are income or expenses from playing on the securities market, payment for borrowed funds, or, on the contrary, income from various investments. Thus, financial profit does not imply the participation of the enterprise in the process of generating income, but involves the use of enterprise funds. We take into account financial profit and move on.
The next term in our work on how to calculate net profit will be another operating profit. Under this obscure name are hidden, merely, gains and losses, which can be called random. For example, there was a fire at the enterprise or the enterprise managed to find a treasure on its territory. Despite the fact that each individual situation seems unlikely, in fact there are quite a lot of such random “arrivals” and “departures” and you should not forget about them.
And finally, it's time to deduct tax deductions from the state from your profit indicator. Tax legislation is quite complicated and confusing. Some incomes may not be taxed, and some expenses, on the contrary, cannot be deducted in calculating the tax base. So, if you do not know how to accurately determine your debt to the state, then it is better to seek the help of specialists so that then there are no problems. One way or another, subtract the amount of tax deductions - and what you get will be net profit.
Now that you know how to calculate net profit, you can easily and quickly analyze the real successes of your business. It is likely that with a seemingly successful enterprise, it may even turn out to be unprofitable, and the enterprise where you were going to put an end to it can bring impressive net profit. To protect yourself from mistakes, always keep this indicator in mind when making important management decisions.