STUDENT CORNER - 243
NET PROFIT
Any business must earn profit to continue in the business. And to know
the profit of the company periodically helps the company know whether they
perform well. We saw about the Gross profit in our last session and now we will
spend some time on the net profit. We must know the difference between the
Gross and Net profits; any businessman will automatically arrive at the Net
profit which alone gives rather an exact picture of the performance of the
company.
What is Net Profit? Net Profit is what the business has earned and to
know it, you have to subtract all your expenses that is business related
expenses, from the revenue you have got from the total sale of your products or
services. That too, it is calculated for a specific period. The expenses
include tax, interest you pay for the loan if any you have availed of, and all
operating expenses (which include the money you pay to relevant authorities to
keep the business moving smoothly- Hope you understand what is meant by it.
Paying attention to the sanctioning authorities has become a norm nowadays and
without this off-the record attention, you cannot hope to arrive at any profit
out of your business soon; we all know delayed profit corrodes into the real
profit of the company; your business instinct must know how to convert
political intervention in any form into business-promoting venture; this is
essential common sense;, established ethical norms, so to say)
Thus after deducting all, ALL expenses from the revenue, you know your
net profit. Revenue is what you get from the sale of your products. Here, there
is also net sales. Revenue and net sales
are closely related; net sales include the discount you offer to your customers
when they buy your products, Net sales tell
you your final exact profit because net sales include damaged products which
are returned to you by the buyer, your customer.
Such return of the damaged product affects not only your profit but also
the reputation of the company. Therefore, you have to take all necessary
actions to prevent or at least to minimize such returns of the damaged
products.
Knowing the exact level of net profit is a must for a business to make
any financial decisions such as expanding your business through diversification
or acquiring more of raw materials in anticipation of growth of the sales. Gross
profit will not make your financial decisions viable and reliable. So, net
profit is what directs you the way you are moving in the business and the way
you want to move ahead.
