Operating Profit vs Net Profit

Difference Between Operating Profit vs Net Profit

Business is always carried out with an objective of earning a profit and the same works as an incentive or as a booster to the business runner or the entrepreneur as it awards them for the resources spent and risk taken during the financial year. Profit can be broadly sliced into three parts which are gross profit, operating profit, and net profit.
In this article, we will discuss the difference between Operating Profit vs Net Profit.

Operating Profit is the profit which is earned from the regular activities of the business or of the enterprise. After arriving at the Gross Profit and from that when operating expenses (i.e. indirect expenses) like salary, rent, depreciation, insurance, telephone expenses, and electricity are subtracted from it, we get Operating Profit. This can also be termed as Earnings Before Interest and Taxes (EBIT) and this should not be any Non-Operating Income.

Net Profit is the positive value (surplus) which remains with the company or the firm after deducting or say accounting for all kind of expenses, interest, and taxes. After arriving at the Operating Profit margin figure, then one needs to deduct the interest on long-term debt and corporate taxes from it, and the resultant figure will be Net Profit. It depicts the present or the current profitability position of the firm or of the company. Along with that, it will also reflect the success and failure of the company or the entity. Net Profit can also be referred to as Earnings After Taxes (i.e. EAT). Net Profit is shown in the last or in the bottom line of the income statement.

Head To Head Comparison Between Operating Profit vs Net Profit (Infographics)

Below are the top 7 difference between Operating Profit vs Net Profit

Key Differences Between Operating Profit vs Net Profit

Both Operating Profit vs Net Profit are popular choices in the market; let us discuss some of the major Difference Between Operating Profit vs Net Profit:

• Operating Profit is the income that will remain after one deducts all the indirect expenses that are incurred to run the business from the gross profit figure and on other hands, Net Profit is the final profit figure or says it is net of all expenses, interest and the corporate taxes.
• Operating Profit depicts the operating effectiveness of the company or of the entity, but on the other side, the Net Profit figure will reveal the actual profit which is made during the financial year.
• Operating Profit will help in knowing those unnecessary expenses which can be eliminated while the Net Profit figure will provide an overview of the management of the entire current position of the company or the entity.
• EBIT (Earnings Before Interest and tax) is another term for operating profit whereas EAT (Earnings After Tax) is another term for net Profit.

Operating Profit vs Net Profit Comparison Table

Below is the 7 topmost comparison between Operating Profit vs Net Profit

Conclusion

The two types of profit i.e Operating Profit vs Net Profit, which we have discussed, are among the three slices of the term Profit. The meaning of these two Operating Profit vs Net Profit is very clear and further, there is no contradiction in understanding these terms. At the fundamental level gross profit is the first profit figure that exists and is arrived by deducting all of the direct expenses which is followed by operating profit at the center level which is arrived by deducting all of the indirect expenses that are incurred to run the business from the gross profit figure but interest and tax have to excluded while calculating the same and finally the net profit figure which is at the bottom level and the same is the finest form of profit because it is arrived by deducting all of the expenses, corporate taxes, and interest from the operating profit and also any other non-operating income like income from sale of assets like furniture or building, or income from sale of investments will be added here to view the complete picture of the profit. The management uses all the three figures separately and all of the three figures serve a different purpose as stated earlier.

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