What Management Professionals should know about Gross Profit and Net Profit

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Profit of a company is the financial gain which is determined by factors such as account expense cost and taxes. While doing the evaluation of a company it is essential to know more about two most important factors Gross Profit and Net profit.

Gross Profit
Gross profit is defined as the difference between the total revenue of the company which is a measure of the products being sold or services being offered and the cost which are directly associated for the production which is the actual cost of the goods being produced. Gross Profit is also commonly known as Gross Margin or Gross Income. Knowing about Gross Profit helps in determining how effectively the management team has performed during the period for which it is calculated. Sometimes the amount which is deducted from the total revenue and sales include the cost of sales or cost of products which also include the raw material cost fuel used for transportation purpose and wages given in the form of salaries. Gross Profit is usually found in the first part of the Income Statement.

Net Profit
Net profit usually involves the net income of the company which is found out from the difference between total earnings and total expenses for a period of time. Net profit is usually calculated on a quarterly basis or annual basis. Comparison of quarterly Net profit gives an idea about the changes that occur during a year which is helpful for the management team. While calculating net profit several factors like taxes, depreciation, research and development fees and accounting expenses will also be considered. Net profit is also used in the determination of company earnings per share. Earnings per share are calculated through a division of the net profit of the company and the common outstanding shares.

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