What Is the Difference Between Operating Profit and Net Profit?
Operating profit only covers the gross profit, minus direct operating expenses for the company while net profit includes all gains and losses by the company, including tax payments. Operating profits do not cover taxes paid, company assets sold or expenses not related to the company's operating costs. Net profit is the amount of money that the company has added or lost from its overall assets.
Gross profit is the result of net sales minus the cost of manufacturing all goods sold. Subtracting the operating expenses, also known as selling, general and administrative costs or overheads leads to the operating profit. The SG&A costs include salespeople, executives, advertising and the administrative costs of running the company. To obtain the net profit, extraordinary gains or losses, interest gains or losses, as well as other income and taxes need to be accounted for.
Extraordinary gains or losses include the sale or purchase of property or parts of the company. Interest gains or losses depend on payments of loans or interest on account balances. Other income comes from investments that the company holds. After subtracting or adding these figures, the company has the total of its net profits before taxes. Once the tax implications of the previous year are subtracted, the net profit is what remains.