The investor’s field guide · N
Net profit
The accounting profit remaining after recognised expenses, with the precise meaning determined by the stated reporting basis.
Explained by the editorial team
Net profit commonly means profit after operating costs, interest and tax, but small-business listings sometimes use the label loosely. Always confirm whether a quoted figure is before or after tax and whether owner compensation or adjustments have been included.
A worked example
A business reports £100,000 profit after tax but has £60,000 tied up in newly unpaid customer invoices. It can be profitable on the accounts while collecting much less cash during the period. Loan principal repayments and equipment purchases may absorb further money without matching the same period’s expense figure.
What to examine
Read the profit and loss account alongside the balance sheet and cash flow information. Distinguish recurring trading performance from asset sales, exceptional items and changes in estimates. Check whether the owner is paid a realistic salary for their work. Net profit is a useful accounting result, but neither a complete valuation method nor proof that an acquisition can service its proposed debt.
General information, not investment, legal or tax advice. Examples are illustrative. Read the disclaimer.