Net Profit
The profit remaining after all operating costs, interest, depreciation, amortisation, and tax have been deducted from revenue.
Net profit is the bottom-line profit of a business after all costs have been deducted from revenue - including cost of goods sold, overheads, depreciation, amortisation, interest charges, and tax. It is the profit attributable to shareholders or the business owner.
Net profit margin (net profit as a percentage of revenue) is a key indicator of business efficiency and pricing power. Lenders use net profit alongside EBITDA to assess whether a business is generating sufficient earnings to service debt. A business with strong EBITDA but low or negative net profit may have high interest costs, heavy depreciation charges, or a large tax bill.
For owner-managed businesses, the distinction between salary taken by the owner and profit retained in the business can affect how profit is reported. Lenders experienced in SME finance understand this dynamic and will normalise director remuneration to assess the true profitability of the business.
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