Loading the player...

A number of terms in business finance have differing or even fluid meanings in day-to-day use. Some terms used interchangeably by the average person actually have very specific definitions in a finance or accounting context. This can create a great deal of confusion for someone just starting out in business or investing, so it is important to have a firm grasp of finance terminology from the very beginning. Though both terms deal with the positive flow of cash, profit and net income are two concepts with definitions and contextual usage that differ in important ways.

Net income, also called net profit, is a concrete concept. This is the renowned bottom line of an income statement and the figure that most comprehensively reflects a business' profitability. The net income of a company is the result of a number of calculations, beginning with revenue and encompassing all expenses and income streams for a given period. All the money that flows in and out of a company is accounted for in this amount. This includes expenses for the manufacture of products; operating expenses; payment on debts; interest paid on loans or accrued from investments; additional income streams from subsidiary holdings or the sale of assets; depreciation and amortization of assets; taxes; and even one-time payments for unusual events.

Profit, conversely, can refer to a number of figures. Profit simply means revenue that remains after expenses. While net profit is synonymous with net income, corporate accountants calculate profit at a number of levels. For example, gross profit is revenue less the cost of goods sold, or COGS. Operating profit refers to revenue less COGS and operating expenses. Calculating profit at different stages allows companies to see which expenses take the biggest bite out of the bottom line.

  1. Is operating profit the same as net income?

  2. What is the difference between gross profit, operating profit and net income?

  3. What is the difference between revenue and profit?

    Understand the difference between revenue and profit, two key concepts in business accounting, including where each can be ... Read Answer >>
  4. What is the formula for calculating profit margins?

    Learn about gross, operating and net profit margins, how each is calculated and how they are used by businesses and investors ... Read Answer >>
  5. What is the difference between revenue and income?

    Understand the difference between income and revenue, how these terms are often confused in day-to-day usage and how to identify ... Read Answer >>
  6. How do operating expenses affect profit?

    Explore how operating expenses and the cost of goods sold can either increase or decrease a company's profits on an income ... Read Answer >>
Related Articles
  1. Investing

    Is Net Income The Same As Profit?

  2. Investing

    Gross, Operating and Net Profit Margins

  3. Investing

    Understanding Profit Metrics: Gross, Operating and Net Profits

  4. Investing

    What Is The Difference Between Revenue And Profit?

    Think of revenue as the top line of a company’s income statement. Profit is the infamous bottom line.
  5. Investing

    Understanding the Income Statement

    The best way to analyze a company—and figure out if it's worth investing in—is to know how to dissect its income statement. Here's how to do it.
  6. Investing

    Profit Metrics: Gross, Operating & Net Profits

  7. Investing

    What Is The Difference Between Revenue And Income?

    The average person uses revenue and income in interchangeable ways. But these terms refer to very specific, and different, concepts.
  8. Investing

    The Difference Between Gross and Net Profit Margin

  9. Investing

    What's a P&L Statement?

  1. Profit

  2. Net Profit Margin

  3. Net Loss

  4. Net Income - NI

  5. Corporate Profit

    A statistic reported quarterly by the Bureau of Economic Analysis ...
  6. Operating Profit

    The profit earned from a firm's normal core business operations. ...
Hot Definitions
  1. Davos World Economic Forum

  2. Smart Home

  3. Efficient Frontier

  4. Basis Point (BPS)

  5. Initial Public Offering - IPO

  6. Border Adjustment Tax

Trading Center