Question

Explain the following:

Net Profits

Answer 1

Net Profit is the difference between Total Revenue and Total Cost, where Total Cost includes both fixed and variable costs. In short: 

Net Profit = Total Revenue − Total Cost

It reflects the profit remaining after all costs (fixed and variable) are deducted. It can also be expressed as:

Net Profit = Gross Profit − Fixed Costs

where Gross Profit is Total Revenue minus Total Variable Cost.

Thus, Net Profit represents the true profit after covering all expenses. Maximizing gross profit usually leads to maximizing net profit when fixed costs are constant.