How to calculate the gross profit, net profit and the bottom line 

Lesson Details:

Video Transcription: So in this lecture we're going to talk about some things that sound confusing gross profit operating profit and net income sounds like business school don't run away it's easy very easy and stuff you have to kind of just be aware of you know you don't really have to I mean yeah you kind of have to calculate it if you're showing it to investors and things like that if you have a existing business with profit but if you're just planning this is just good to know so profit okay simplest profitability metric is the gross profit okay and that's all the income remaining after accounting for cost of goods sold okay cost of goods sold is a term sometimes there's an acronym cogs it basically means includes only expenses directly associated with production of goods what does that mean it means you exclude things like taxes one-time payments that purchases any curve any kind marketing operating costs so those are all included excluded from your gross profit okay now your operating profit includes all that right so you have your revenue but the profit is your taxes your dad the purchases marketing operating costs and what it took you to create so basically everything right and then you figure out your operating profit and then the net income or net profit is essentially what's left over that's your sometimes called the bottom line those are your actual profits and that's actually it it's pretty simple you see that it's really simple there's just really three things to keep in mind is that the first thing is the gross profit you see here that's really the profit if you don't count like one-time fees or legal fees or anything that didn't go directly into calculating your into-into sorry if that's everything that didn't sorry the merest a star over your gross profit is is basically you take you take away everything like you don't count taxes you don't count one-time fees you don't count the marketing cost this is only the cost that it took to produce the product okay the operating profit is really everything else because you know your business doesn't live in a vacuum you have to have marketing costs sometimes legal costs sometimes other costs sometimes rent whatever right so that's really more of like the health of your business and of course the net income is you take your revenue and you subtract your all the expenses right very simple so those are these seemingly complicated business he terms but if they're pretty simple and in the next lecture we'll kind of use them a little bit to have further calculation.