What is the main distinction between gross profit and net profit?

The main distinction between gross profit and net profit lies in their calculations and the aspects of financial performance they reflect. Gross profit is determined by subtracting the cost of goods sold (COGS) from total revenue, which indicates how efficiently a company produces its goods and the profitability of its core operations.

On the other hand, net profit is derived from gross profit after deducting all other expenses, including operating expenses, interest, taxes, and any other costs. This figure represents the overall profitability of the business, providing a comprehensive view of how much money remains after all necessary expenses have been accounted for.

By understanding this key difference, it becomes clear that gross profit focuses solely on the direct costs of producing goods or services, while net profit gives insight into the company’s total financial health and profitability after all expenses have been taken into consideration.