On This Page
- Down the income statement
- Before tax, after tax and margin
- Hitting a target net margin
- Why EBITDA and net profit drift apart
- Three businesses, three margins
- What a good net margin looks like
- How the calculation is verified
- FAQ
Down the Income Statement
Net profit is what is left after every cost, interest payment and tax. It is the bottom line, the figure behind earnings per share, dividends and most valuations. The calculator walks down the income statement one subtraction at a time. Using $200,000 of revenue:
- Revenue $200,000 − COGS $110,000 = gross profit $90,000
- − operating expenses $40,000 = operating profit (EBIT) $50,000
- − interest $5,000 = net profit before tax $45,000
- − 20% tax ($9,000) = net profit after tax $36,000, an 18% net margin
Leave operating expenses, interest or tax at zero if they do not apply. The result grid shows every subtotal, and the comparison bars show the margin shrinking from gross to operating to net. For the first step on its own, the Gross Profit Calculator goes deeper.
Before Tax, After Tax and Margin
Net profit after tax = Before-tax profit × (1 − tax rate)
Net margin = After-tax profit ÷ Revenue × 100
Tax is charged on the before-tax figure, never on gross profit or revenue, and the calculator only applies it when that figure is positive. "Net profit percentage," "net margin" and "net profit ratio" (the same number as a decimal, 0.18) all describe the last line. The same gross-to-net logic applies to a paycheck, which the Gross to Net Pay Calculator handles.
Hitting a Target Net Margin
Enter a target margin and the calculator solves for the revenue you need at your current costs, and the most you can spend at your current revenue:
With $155,000 of total costs, 20% tax and an 18% target: $124,000 ÷ 0.62 = $200,000. If the target margin is as large as (1 − tax rate) or larger, no amount of revenue gets there, and the calculator says "Not achievable."
Why EBITDA and Net Profit Drift Apart
EBITDA adds depreciation and amortization back onto operating profit and ignores interest and tax. That makes it useful for comparing how well businesses operate regardless of their debt or tax situation. It is also why a debt-heavy, equipment-heavy company can show strong EBITDA and a thin or negative net profit. Lenders and shareholders care about the net figure, because that is the money that pays dividends and debt. To get from EBITDA to net profit, subtract depreciation and amortization (giving EBIT), then interest, then tax. The Profit Margin Calculator puts gross, operating and net margins side by side.
Three Businesses, Three Margins
A debt-free consulting firm bills $300,000 against $80,000 of delivery costs and $120,000 of overhead. Before tax it earns $100,000. At 22% tax that leaves $78,000, a 26% net margin.
A manufacturer with a loan turns $1,200,000 of revenue, less $750,000 COGS, $280,000 overhead and $40,000 interest, into $130,000 before tax. At 25% tax that is $97,500, about 8.1%. The loan interest alone, after its tax saving, costs it 2.5 points of net margin.
The same retailer in two tax regimes makes $60,000 before tax on $500,000 of sales. At 0% tax it keeps 12%, and at 30% it keeps $42,000, 8.4%. Always label which figure you are quoting when comparing across countries.
For a self-employed person, net profit is income minus business expenses: $85,000 invoiced less $18,000 of costs is $67,000. That is the figure income tax and self-employment tax are then worked out on, separately.
What a Good Net Margin Looks Like
Only peers are a fair comparison. Rough ranges: software and SaaS 15–30%, banking 20–30%, professional services 10–20%, restaurants 3–9%, retail 2–5%, airlines and other capital-heavy businesses 2–6% and sometimes negative, grocery and distribution 1–3%. A 3% margin is excellent in grocery distribution and weak in software. The cost side is where most of that is won, which the Markup Calculator and Break-Even Point Calculator help with. Once you know the profit, the ROI Calculator tells you whether the money invested to earn it paid back.
In Excel, with revenue in B2, COGS in B3, operating expenses in B4, interest in B5 and the tax rate as a decimal in B6, after-tax profit is =(B2-B3-B4-B5)*(1-B6) and the net margin is that divided by B2.
How the Calculation Is Verified
Net profit before tax works down the income statement in three subtractions: revenue minus COGS gives gross profit, gross profit minus operating expenses gives operating profit, and operating profit minus interest gives net profit before tax. Tax is applied only when that pre-tax figure is positive, calculated as pre-tax profit times your tax rate, and the after-tax result is simply pre-tax profit minus that tax amount. When you set a target margin, the required-revenue field algebraically rearranges that same tax-adjusted formula to solve for revenue instead of profit, which is why it returns "Not achievable" when your tax rate and target margin combination makes the equation's denominator zero or negative.
Frequently Asked Questions
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.
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.