Is Net Profit The After-Tax Profit? What is Gross Profit?

Anyone who is doing business is interested in the numbers of profits. Profits reflect good or bad company performance so that there are the most appropriate corrective and corrective measures. What are the benefits? Is net profit the after-tax profit? What is Gross Profit? Let’s find out in 100startupideas.com in this article.

IS NET PROFIT THE AFTER-TAX PROFIT?

Net profit is determined by subtracting all expenses including corporate income tax from the total revenue. Therefore, net profit is also called another after-tax profit.

Net profit = Revenue – Total cost – 10% VAT – 20% CIT

Net profit or profit after tax is one of the important figures in analyzing the company’s performance.

After calculating the net profit, the company will rely on that number to assess whether for each investment cost, the profit after tax accounts for how much of the revenue. If the value is greater, it means that the policies, directions and investment of the company are effective. But if the smaller the profit, the company’s operation situation is unstable, it can be lost. At that time, the company needs to understand the causes, overcome and find ways to improve the operation of the company better.

The after-tax profit value is also used by the company to assess its level of development and competition compared to other companies in the same business sector. Since then, grasp the development situation in the field of business products and services to have policies and measures to timely catch up with other businesses.

In addition, the value of after-tax profit also helps shareholders in the company can grasp the situation of the company’s operations and their income sources. The greater the value, the higher the income of shareholders from the stock, and vice versa, the smaller the value, the lower the stock will lead to reduced income. In this case, the company needs to propose plans to improve and create a stable psychology for shareholders, avoiding the case of shareholders withdrawing capital will affect the operation of the enterprise.

Example: Revenue of company A = 1,000,000,000 USD

Cost of goods sold = USD 400,000,000

Gross profit = USD 600,000,000

Total expenses = 300,000,000 USD

VAT 10% = USD 1,000,000,000 x 10% = USD 100,000,000

Profit before corporate income tax = USD 600,000,000 – 300,000,000 -100,000,000 USD = USD 200,000,000

Corporate income tax 20% = 200,000,000 x 20% = 40,000,000 USD

Profit after tax = USD 200,000,000 – USD 40,000,000 = USD 160,000,000

Although the revenue of company A is USD 1 billion, after deducting expenses and paying taxes, the final profit is only USD 160,000,000. Investment costs for this business are quite large, especially cost of goods sold. Show that the company has invested a lot in cost to produce this product. But the efficiency is not high, possibly due to large costs, leading to high product costs that are difficult to reach customers. Or marketing policies, branding and product promotion, etc. to customers are not really effective, the level of brand identity is still low, so it has not attracted customers interested in products. The company needs to have better plans and policies to limit investment costs and improve access to customers more.

WHAT IS GROSS PROFIT?

Gross profit is the profit after collecting revenue minus the selling fee (cost of goods sold). For example, to calculate the gross profit of the bread business, you will take the revenue minus the cost of goods sold (including bread, ingredients, kitchen, vegetables, …).

Referring to gross profit, we cannot fail to mention the gross profit margin. Gross profit margin indicates how much profit a company will generate.

Gross profit margin (%) = (gross profit x 100): revenue

The ratio of gross profit margin is usually calculated by the percentage, the larger the ratio, the better the company has generated a profit from a revenue. That proves, the company is making profit and controlling costs better.

Example: Revenue of company A = 1,000,000,000 USD

Cost of goods sold = USD 400,000,000

Gross profit = USD 600,000,000

Gross profit margin = 600,000,000 USD x 100: 1,000,000,000 USD = 60% = 0.6

Company A generated 0.6 USD profit per 1 revenue.

Based on the gross profit margin, it can help investors analyze and evaluate whether the company’s performance is good or not.

It is necessary to regularly calculate the gross profit margin over the years to compare and see how the profitability achieved on a single revenue has decreased compared to previous years, since then there have been improvement measures. better.

Gross profit value may be higher but gross profit margin may be lower. Should use both values ​​to analyze and evaluate together.

Example: Company A’s profit = USD 600,000,000

Revenue of Company A = 1,000,000,000 USD

Gross profit margin = 600,000,000 USD x 100: 1,000,000,000 USD = 60% = 0.6

Profit of company B = USD 350,000,000

Revenue of company B = USD 500,000,000

Gross profit margin = 350,000,000 x 100: 500,000,000 = 70% = 0.7

If we only look at gross profit, we see that company A gets more profit than company B, but if we look at the gross profit margin, company B has a higher rate of profitability than it does. Company A is 0.1 (0.7 – 0.6). Therefore, when comparing two companies in the same field, it is necessary to carefully consider each value and depending on the size and investment, these values ​​will be different, leading to a limp comparison, not reflecting the true situation. image of the company’s activities and general development situation in the industry.

THE DIFFERENCE BETWEEN NET PROFIT AND GROSS PROFIT

Gross profit is the profit after taking revenue minus cost of goods sold. Is the profit value calculated first in the business results table.

Net profit is the profit calculated by deducting the cost of goods sold and subtracting the remaining costs together with taxes to be paid. Equivalent to net profit by gross profit minus the remaining costs and taxes to be paid. This is the final calculated profit value in the business results table

Gross profit, gross profit margin reflect the ability to generate how much profit per revenue, this value only focuses on the profitability of the company in the past year.

Net profit is a value that reflects both the cost, revenue and profit of the company. This value allows investors and shareholders to know how much the company has invested and how much revenue and profit it deserves to invest. Express the profitability of the business.

Each value will have effects that reflect different content. Enterprises need to combine assessment by using all of these values ​​and indicators to get the most accurate view of the performance of the business.

Author

If you find this article useful, please share it with everyone. You can also find business knowledge, how to get rich, what business is an effective start-up idea, how to make money with other products or ideas in the 100startupideas.com search section.

Leave a Reply

Your email address will not be published. Required fields are marked *