Profit is the money you have earned in the end, after paying for all costs and expenses. The 3 types of profit are; gross profit, operating profit and net profit.
Gross Profit
Gross profit is the amount of money you have left after paying for Cost Of Goods & Services Sold (COGS). This is usually the largest type of profit amount, since you haven’t paid for any expense yet, other than COGS.
The simple formula is:
Revenue – COGS = Gross Profit
Operating Profit
Operating profit is the money you have left after paying for operational expenses from the Gross Profit amount. Example of Operational Expenses are Electricity, Rent, Logistics Costs e.t.c.
The formula is now:
Revenue – COGS – Operational Expenses = Operating Profit
Net Profit
This is the amount you get to take home (meaning it is the company’s actual profit). This accounts for all business expenses, costs and taxes.
The formula is now:
Revenue – COGS – Operational Expenses – Taxes – Other Expenses = Net Profit
