KPI Library – Net Profit

Net Profit

Description:

This KPi is generally considered to be the most important measure of business performance. Net profit is the result of deducting the total costs associated with the production of good and services from the sales revenue.

When in surplus, a net profit allows the company to invest in growth / pay dividend to shareholders.

 

Calculation:

Sales revenue minus total costs of the production of good and services = Net Profit (£).

 

Example:

Identify the revenue derived from the total sales in a given year (1000 items x £100 = £100,000). Then combine the total cost associated with production in a given year (cost of sales £30,000 + operating expenses £25,000 + taxes £9,000) = £64, 000. Subtract total cost associated with production (£64,000) from total revenue (£100,000) = £36,000 net profit.