On This Page
- How to use this calculator
- What is net profit?
- Net profit formulas
- Net profit vs gross profit vs operating profit vs EBITDA
- Net profit margin by industry
- Net profit in accounting and Excel
- Worked examples
- Frequently asked questions
How to Use This Calculator
Enter revenue and as many cost fields as you have, and the results update immediately. The calculator shows net profit before tax, net profit after tax, net profit margin, and the gross profit and operating profit subtotals along the way, all from the same set of inputs.
Enter revenue and costs
Revenue is total sales before any deductions. COGS covers only the direct costs of producing what you sold. Operating expenses covers overhead: rent, salaries outside production, marketing, and admin. Interest is what you pay on debt. Tax rate is your effective tax rate applied to profit before tax. Leave operating expenses, interest, or tax rate at zero if they do not apply to your calculation; the calculator still returns a valid net profit figure.
Read the results
The main result is net profit margin after tax. Below it, the result grid breaks down net profit after tax, net profit before tax, gross profit, operating profit (EBIT), and the tax amount itself, so you can see exactly where each dollar of revenue went. The stacked bar visualizes total costs and tax against what remains as net profit, and the three comparison bars show how margin compresses at each stage: gross, operating, then net.
Use the target margin field
Enter a target net profit margin to run a reverse calculation. The calculator shows the revenue you would need at your current cost structure to hit that margin, and the maximum total costs you can carry at your current revenue. Both account for your entered tax rate, since tax is calculated on profit, not on revenue.
What Is Net Profit?
Net profit is what remains from revenue after every cost, expense, interest payment, and tax has been deducted. It is the last line on the income statement, commonly called "the bottom line," and it is the most complete single measure of whether a business made money in a given period.
Net profit sits below gross profit and operating profit on the income statement. Gross profit only deducts the direct cost of producing what was sold. Operating profit additionally deducts overhead like rent and salaries. Net profit goes one step further, deducting interest on debt and income taxes too. By the time you reach net profit, nothing is left to subtract; it is the actual cash benefit (on paper) that ownership keeps.
Why net profit matters on its own:
- It is the figure used to calculate earnings per share, return on equity, and most valuation multiples.
- Lenders and investors use it to judge whether a business generates enough surplus to service new debt or pay dividends.
- It accounts for financing decisions (how much debt a company carries) and tax jurisdiction, which gross and operating profit ignore.
- A business can look healthy at the gross or operating level and still report a net loss if interest payments or taxes are high enough; net profit is the figure that catches this.
Net Profit Formulas
Net profit is usually built up in layers, each one subtracting one more category of cost from revenue.
Net Profit Before Tax
Example: Revenue $200,000, COGS $110,000, OpEx $40,000, Interest $5,000. Net profit before tax = $200,000 − $110,000 − $40,000 − $5,000 = $45,000. This is also called pre-tax profit or earnings before tax (EBT).
Net Profit After Tax
With a 20% tax rate: $45,000 × (1 − 0.20) = $45,000 × 0.80 = $36,000. This after-tax figure is what most people mean by "net profit" or "net income" without further qualification.
Net Profit Margin Formula
($36,000 ÷ $200,000) × 100 = 18%. For every $1 of revenue, 18 cents remains after every cost and tax. This percentage is comparable across companies of different sizes, which is why it is the figure analysts quote most often.
Net Profit Ratio
$36,000 ÷ $200,000 = 0.18. Identical meaning to an 18% net margin, expressed as a decimal instead of a percentage. Some financial models use the ratio form because it plugs directly into other formulas without a ÷ 100 step.
Reverse: Required Revenue for a Target Net Margin
If you know your total costs and tax rate and want to hit a specific net margin, solve for the revenue needed.
With total costs (COGS + OpEx + Interest) of $155,000, a 20% tax rate, and a target net margin of 18%: [$155,000 × 0.80] ÷ [0.80 − 0.18] = $124,000 ÷ 0.62 = $200,000 required revenue. The target margin field in the calculator above runs this automatically, along with the equivalent maximum-total-costs version.
Net Profit vs Gross Profit vs Operating Profit vs EBITDA
Four profit figures appear in financial reporting and each one tells a different story by stopping the deductions at a different point.
The profit hierarchy
Gross profit: Revenue minus COGS only. Measures the profitability of the product or service itself, before any overhead. See the Gross Profit Calculator for a dedicated breakdown.
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): Operating profit with depreciation and amortization added back. It strips out non-cash accounting charges and financing/tax decisions, which makes it popular for comparing operating performance across companies with different capital structures or tax jurisdictions.
Operating profit (EBIT): Gross profit minus operating expenses, including depreciation and amortization. Measures core business profitability before financing costs and taxes.
Net profit: Operating profit minus interest and taxes. The bottom line: what is actually left after every obligation.
Why EBITDA and net profit diverge
EBITDA vs net profit is one of the most common comparisons in financial analysis because the gap between them reveals a company's debt load and tax exposure. A capital-intensive business with heavy depreciation and high debt can show strong EBITDA while reporting a thin or negative net profit, because EBITDA ignores the depreciation, interest, and tax that net profit fully accounts for. Investors use EBITDA to compare operating efficiency; lenders and equity holders ultimately care about net profit, because that is the figure that funds dividends, debt paydown, and retained earnings.
To go from EBITDA back to net profit: subtract depreciation and amortization (giving EBIT/operating profit), then subtract interest (giving pre-tax profit), then subtract tax (giving net profit). For a full multi-margin comparison in one tool, see the Profit Margin Calculator.
Net Profit Margin by Industry
Net margin compresses more than gross margin because it absorbs overhead, financing costs, and taxes on top of production costs. What counts as "good" varies sharply by industry and capital structure.
High net-margin industries
Software and SaaS: 15-30%, sometimes higher at scale. Low marginal delivery cost and asset-light balance sheets (little debt, little depreciation) let gross margin advantages flow through to the net line.
Banking and financial services: 20-30%. Different cost structure entirely (interest income/expense dominate), but mature institutions sustain high net margins.
Professional services: 10-20%. Labor-heavy but low capital investment means less depreciation and interest drag.
Mid-range and lower net-margin industries
Retail: 2-5%. High gross margins are eroded by store overhead, staffing, and competitive pricing pressure.
Restaurants: 3-9%. Strong food-level gross margin, but labor and rent consume most of it before reaching net profit.
Grocery and distribution: 1-3%. Thin margins offset by very high volume; net profit depends on turnover speed, not margin width.
Airlines and capital-intensive industries: Often 2-6%, sometimes negative in downturns. Heavy depreciation and debt-funded assets create a large gap between EBITDA and net profit. For pricing decisions that feed into net margin, the Markup Calculator and Break-Even Point Calculator help control the cost side before tax and interest are even applied.
Net Profit in Accounting and Excel
Net profit is a required line on every income statement under GAAP and IFRS. It sits at the very bottom, after every other deduction.
Income statement structure
- Revenue (net sales)
- Less: Cost of Goods Sold → = Gross Profit
- Less: Operating Expenses (includes depreciation & amortization) → = Operating Profit (EBIT)
- Less: Interest Expense → = Profit Before Tax (Net Profit Before Tax)
- Less: Income Tax → = Net Profit (Net Income)
To calculate net profit from an income statement, take the bottom line directly; it is usually labeled "Net Income," "Net Profit," "Net Earnings," or "Profit for the Year." If only subtotals are given, work down from revenue subtracting each cost category in order.
Is income tax calculated on gross or net profit?
Neither, exactly. Income tax is calculated on net profit before tax (also called taxable income or pre-tax profit): the figure after COGS, operating expenses, and interest have already been subtracted, but before tax itself is applied. Tax is never calculated on gross profit or on revenue directly; doing so would ignore legitimate business expenses.
Net profit in Excel
With revenue in B2, COGS in B3, operating expenses in B4, interest in B5, and tax rate in B6 (as a decimal):
- Gross profit:
=B2-B3 - Operating profit:
=B2-B3-B4 - Net profit before tax:
=B2-B3-B4-B5 - Net profit after tax:
=(B2-B3-B4-B5)*(1-B6) - Net profit margin %:
=((B2-B3-B4-B5)*(1-B6))/B2formatted as a percentage
Use absolute references ($B$2) when these cells are referenced across multiple formulas or rows. Once net profit is established, the ROI Calculator shows whether the capital invested to generate it produced an acceptable return.
Worked Examples
Example 1: Small Business, No Debt
A consulting firm bills $300,000 in revenue with $80,000 in direct delivery costs (COGS) and $120,000 in operating expenses. There is no debt, so interest is $0. The effective tax rate is 22%.
Net profit before tax = $300,000 − $80,000 − $120,000 − $0 = $100,000. Net profit after tax = $100,000 × (1 − 0.22) = $78,000. Net margin = ($78,000 ÷ $300,000) × 100 = 26%.
Example 2: Manufacturer with Debt
A manufacturer has $1,200,000 in revenue, COGS of $750,000, operating expenses of $280,000, and pays $40,000 in interest on a business loan. Tax rate is 25%.
Net profit before tax = $1,200,000 − $750,000 − $280,000 − $40,000 = $130,000. Net profit after tax = $130,000 × 0.75 = $97,500. Net margin = ($97,500 ÷ $1,200,000) × 100 = 8.1%.
Example 3: Net Profit Before Tax vs After Tax
A retailer reports net profit before tax of $60,000 on $500,000 revenue. In a 0% tax jurisdiction, net profit after tax equals the same $60,000 (12% margin). At a 30% tax rate instead, net profit after tax = $60,000 × 0.70 = $42,000 (8.4% margin). The tax rate alone moves net margin by 3.6 percentage points on identical operations; this is why "before tax" and "after tax" figures must always be labeled clearly when comparing businesses across tax jurisdictions.
Example 4: Self-Employed Net Profit
A freelance designer invoices $85,000 for the year. Business expenses (software, equipment depreciation, a portion of home office costs) total $18,000. There is no separate "interest" or formal tax-rate line; self-employment tax and income tax are typically calculated afterward on the net profit figure reported to the tax authority.
Net profit (pre-personal-tax) = $85,000 − $18,000 = $67,000. This is the figure that flows onto a Schedule C or equivalent self-employment tax form, before personal income tax and self-employment tax are calculated on it separately.
Example 5: Required Revenue for a Target Net Margin
A business has fixed total costs (COGS + OpEx + Interest) of $155,000 at its current scale, a 20% tax rate, and wants an 18% net margin. Using the reverse formula: Required Revenue = [$155,000 × 0.80] ÷ [0.80 − 0.18] = $124,000 ÷ 0.62 = $200,000. Below that revenue, the 18% target is not reachable at the current cost base.
Frequently Asked Questions
What is net profit?
Net profit is what remains from revenue after subtracting every cost: cost of goods sold, operating expenses, interest, and taxes. It is the bottom line of the income statement and the most complete measure of a business's profitability for a given period. It is also called net income or net earnings.
How do you calculate net profit?
Subtract every cost category from revenue in order: Net Profit Before Tax = Revenue − COGS − Operating Expenses − Interest. Then apply tax: Net Profit After Tax = Net Profit Before Tax × (1 − Tax Rate). If revenue is $200,000 and total costs before tax are $155,000, net profit before tax is $45,000; at a 20% tax rate, net profit after tax is $36,000.
How do you calculate net profit margin?
Divide net profit after tax by revenue and multiply by 100: Net Profit Margin = (Net Profit ÷ Revenue) × 100. A net margin of 18% means 18 cents of every revenue dollar remains after every cost and tax. This is the most widely quoted profitability percentage because it accounts for the entire cost structure, not just production costs.
How do you calculate net profit before tax?
Net Profit Before Tax (also called pre-tax profit or EBT) = Revenue − COGS − Operating Expenses − Interest. Tax has not yet been applied at this stage. It is the figure tax is calculated on, not a figure calculated from tax.
How do you calculate net profit after tax?
Net Profit After Tax = Net Profit Before Tax × (1 − Tax Rate), or equivalently, Net Profit Before Tax minus the tax amount. If net profit before tax is $45,000 and the tax rate is 20%, tax owed is $9,000, and net profit after tax is $36,000.
Is income tax calculated on gross or net profit?
Income tax is calculated on net profit before tax (taxable income): after COGS, operating expenses, and interest are deducted, but before tax itself is subtracted. It is never calculated on gross profit or revenue directly.
What is the difference between net profit and gross profit?
Gross profit only subtracts the direct cost of producing what was sold (COGS). Net profit subtracts everything: COGS, operating expenses, interest, and taxes. A company can have a high gross margin and a low or negative net margin if overhead, debt, or tax burden is high enough. Gross profit measures product economics; net profit measures the whole business after every obligation.
How does net profit differ from EBITDA?
EBITDA adds back interest, taxes, depreciation, and amortization to operating profit, so it ignores financing structure, tax jurisdiction, and non-cash accounting charges. Net profit includes all of them. EBITDA is useful for comparing operating performance across companies with different debt loads or tax rates; net profit is the figure that determines what is actually available for dividends or reinvestment.
What is a good net profit margin?
It depends heavily on industry. Software and professional services often run 15-30%. Retail and restaurants typically run 2-9%. Grocery and distribution run 1-3%. Compare net margin to industry peers rather than to a universal benchmark; a 3% net margin is excellent in grocery distribution and weak in software.
How do you calculate net profit percentage?
Net profit percentage is the same calculation as net profit margin: (Net Profit ÷ Revenue) × 100. If net profit is $36,000 on revenue of $200,000, net profit percentage is 18%. The terms "net profit percentage," "net profit margin," and "net margin" all refer to the same figure.
How do you calculate net profit from an income statement?
The bottom line of a standard income statement is already labeled "Net Income" or "Net Profit." If you only have subtotals, start from revenue and subtract COGS (to get gross profit), then operating expenses (to get operating profit), then interest (to get pre-tax profit), then tax (to get net profit).
How do you calculate net profit for self-employed income?
Subtract allowable business expenses from total income: Net Profit = Total Income − Business Expenses. This figure is typically reported on a self-employment tax form (such as Schedule C in the US) and is the base on which both income tax and self-employment tax are calculated separately, outside of this business-level net profit figure.
How do you calculate net profit from selling a house?
This is a different calculation from business net profit. Net proceeds from a home sale = Sale Price − Selling Costs (agent commission, closing costs, repairs) − Remaining Mortgage Balance. For example, a $400,000 sale with $24,000 in selling costs and a $250,000 mortgage payoff nets $400,000 − $24,000 − $250,000 = $126,000 before any capital gains tax considerations. This calculator is built for business net profit; a real estate net proceeds calculation uses sale price and mortgage payoff instead of revenue and COGS.
References
- Investopedia: Net Income: Definition, formula, and worked examples of net profit/net income on a standard income statement.
- AccountingTools: Net Profit: Accounting-focused explanation of how net profit is derived and reported.
- Corporate Finance Institute: Net Profit: Financial analysis perspective on net profit margin, EBITDA comparisons, and industry benchmarks.