What is the formula for calculating a business's net profit?

The formula for calculating a business's net profit is found by subtracting business expenses from gross income. This calculation reflects the actual profitability of a business after all necessary costs of operation, including wages, rent, utilities, and other expenses, have been deducted from the income generated from sales.

Net profit provides a clear indication of how efficiently a business is operating and is a crucial metric for assessing financial health. This measure is vital for business owners as it helps them understand the real earnings of their operation and make informed financial decisions moving forward. The alternative calculations do not accurately capture the concept of net profit, as they either add expenses instead of subtracting them or do not consider gross income against expenses directly.