How to Calculate
Calculating net profit forms a base for calculating the net profit margin and the net profit ratio. Net profit margin is a measure of what percentage of sales is net profit or how much of each sales dollar is retained as profit.
Net profit is reported on the “Income and Expense Statement" of financial reports. The formula for calculating net profit is:
Net Profit = Net sales – Gross Profit – administrative expenses - taxes and interest.
These figures reveal what percentage of revenue is retained after the all costs are covered. Here is an example; assuming the following: sales are $20,000, cost-of-goods-sold are $7,000 and other expenses (taxes, interest and administrative) total another $7,000.
The Net profit margin would be:
Net profit = $20,000 – ($7,000 + $7,000) = $6,000
Net profit margin = (net profit/ sales) * 100 = ($6,000 / $20,000) * 100 = 30%; which is not a bad figure.