Difference Between Net Profit and Operating Profit
Profit is the most friendly term to a business owner, however, over the life-cycle of a business, the term “profit” is divided into different types according to the sources from where the benefit is received. Below is the difference between net profit and operating profit along with their respective examples.
The word Net means “after all deductions”. Therefore, profit earned after all deductions have been made is called Net Profit. It is also called “Net Income”,”Net Earnings”. It is the difference between total revenue earned and the total cost incurred.
Deductions include adjustments related to the cost of doing business such as taxes, depreciation and other miscellaneous expenses.
Net Profit = Total Revenue – Total Cost
Net Profit = Gross Profit – (Total Expenses for Operations, Interests and Taxes)
Net profit can be found in a company’s income statement.
Total Operating + Non-Operating Revenues and Gains = 60,000
Total Operating + Non-Operating Expenses and Losses = 40,000
Net Profit = Total Revenues – Total Costs NP = 60,000 – 40,000 = 20,000
The profit earned from a firm’s core business operations is called Operating Profit. So a shoe company’s Operating profit will be the profit earned from solely selling shoes. Operating profit doesn’t include any profits earned from investments and interests. It is also known as “Operating Income”, “PBIT” and “EBIT” (Earnings before Interest and Taxes).
It is the excess of Gross Profit over Operating Expenses.
Operating Profit = Gross Profit – Operating Expenses
Operating Profit = Net Profit – Non-Operating Expenses – Non-Operating Income
Gross profit from operations of a shoe company = 20,00,000
Profit from investment = 1,00,000 Operating Expenses for Selling Shoes = 10,00,000
Operating Profit = 20,00,000 – 10,00,000 = 10,00,000.
*Any other profit earned from different sources, except business operations, will not be included to calculate Operating profit.
One of the main points of difference between net profit and operating profit is that net profit takes into account earnings from all sources & all sorts of deductions whereas operating profit only considers profits earned from operations.