Operating Profit vs Net Profit

The main purpose of running any business is profit. Profit is in hand after paying all bills and expenses. Profits are of three types: net profit, operating profit, and gross profit, and these bifurcations are done based on the source from where the business has generated profit.

This article looks at the key differences between Operating Profit and Net Profit.

Operating Profit is derived from gross profit. It is the income left after paying all expenses and costs paid by the company in running the business. We can say the remaining amount after accounting for all expenses and cost, which includes all fixed cost expenses like rent, maintenance cost, insurance cost, etc. and variable cost expenses courier, electricity bills, depreciation of the asset, etc.

Operating profit does not include profit generated by investment or interest generated on savings. Operating profit helps one to the known profit generated by company operations. It deals with the core of the company.

Operating profit is gross profit minus operating expenses and can be written as:-

• Operating Profit = Gross Profit - Operating Expenses

Operating profit can also be calculated as net profit minus non-operating expense minus non-operating income, and it can be expressed as:-

• Operating Profit = Net Profit – Non-operating Income – Non-operating Expenses

Net Profit is the total remaining income left after accounting all cash flows. It can be inflow or outflow, which represents positive or negative. It is also the number of earnings left after reducing all expenses done by the company, interest paid by the company to the lender, and taxes. Net Profit is the profit generated from all sources after deducting all expenses.

It is used as an indicator as it indicates the ability of the company to generate from its sales. It tells about the profitability of the company, and it shows the actual profit generated by the company in a particular accounting period. It is a basic difference between total revenue and the total cost incurred by the company in running the business.

The net profit is total revenue minus total cost, which can be expressed as:-

• Net Profit = Total Revenue – Total Cost.

Net profit can be written as gross profit minus total expense for operations, interests, and tax, and it can be expressed as:-

• Net Profit = Total Revenue – Total Expense for Operations, Interest, and tax.

Net profit in terms of operating profit is operating profit minus interest minus tax, and it can be written as:-

• Net Profit = Operating Profit – Interest - Tax.

Here we provide you with the top 4 differences between Operating Profit vs. Net Profit.

The key differences between Operating Profit vs. Net Profit are as follows –

• Operating profit is the remaining income of the company after paying off operating expenses. In contrast, Net profit is the remaining income of the company after paying all costs incurred.
• Operating profit helps to know how the company manages its resources and expenses. In contrast, Net profit helps to know the actual profit made by the company in an accounting period.
• Operating profit help in eliminating unnecessary operating expenses, whereas Net profit help To know the profit and performance of the company in an accounting period.
• Operating profit is the profit generated from operational activities, whereas Net profit is the profit generated from all sources after deducting all expenses.
• Operating profit and its calculation parameters concentrate on the core operational activity of the company. In contrast, net profit and its calculation parameters concentrate on overall activity and other sources also for calculation profitability of the company.
• Operating profit is about the profitability of a company’s operations, whereas net profit is the company’s abilities to generate for owners, stake owners, and shareholders.

Let’s now look at the head to head difference between Operating Profit vs. Net Profit.

There are some similarities between operating profit and net profit, and they are as follows:-

• Operating profit and net profit are part of a company's income statement.
• Both show the profitability of the company and provide profit generated by the company.
• Both are helpful for one reading financial statements and provide a clear picture of the company's health.
• Both are calculated after the deduction of various expenses of the company.

Profits are of three types net profits, operating profit and gross profit, and these bifurcations are done on the bases of the source of from which the business has generated profit, and when profit is generated from operational activities, it is operating profit, and when profit is for the generation of overall business, it is net profit. There are various levels of profit, among which the fundamental level is gross profit, the middle level of profit is operating profit and bottom, and the final level of profit is net profit which is the actual profit of a company. Operating profit and net profit are part of a company's income statement.

Operating profit is the remaining income of the company after paying off operating expenses, and Net profit is the remaining income of the company after paying all costs incurred by the company, including all expenses, tax, and interest. Both the operating profit and net profit help one to know the company's profitability.

This article has been a guide to the Operating Profit vs. Net Profit. Here we discuss the top differences between Operating Profit and Net Profit along with infographics and a comparison table. You may also have a look at the following articles –

• Non-Operating Expenses List
• EBIT vs. Net Income
• NOPAT and Net Income
• Profit vs. Revenue