What is annual income, net income, profit

Profit and income are key indicators of the effectiveness of the financial and economic activities of the company, their profitability and solvency depend on them. There are a number of important differences between these concepts.

The concept of net income and its difference from profit

In English, the concepts of net income and profit are identical, while in Russian there are a number of differences between them. The concept of net income is broader than net profit.

Net sales revenue is calculated as gross sales revenue minus the cost of returned goods and discounts.

In relation to a private person, net income is income after tax, deductions and loans.

Profit - this is the target guideline for the company, which stimulates its future activities, it is part of the annual income or revenue that remains after reimbursement of costs for the production and marketing of products. Distinguish between gross, net and marginal profit.

Gross profit is generated from three sources, among them:

- profit from the sale of products, which is calculated as the difference between the proceeds from the sale of products (excluding VAT and excise taxes) and its cost;

- profit from the sale of material assets - the difference between the sale price and the cost of their acquisition;

- non-operating profit (income from securities, equity participation, leasing of property).

Net profit is the company's profit before dividends. It is calculated as the difference between the total revenues of the company and expenses (for example, the cost of goods) that it incurred in the course of its activities, then depreciation, taxes, penalties, and loan payments are deducted from this indicator. Net profit can be found in the income statement. It is a key indicator of a company's performance and is also used to determine earnings per share.

Marginal profit is defined as the positive difference between the net sales income and the cost of sales of products or services.

It is also worth distinguishing accounting and economic profit. If accounting takes into account only permissible legislation costs, then the economic also other informal expenses of the entrepreneur (for example, corruption, additional bonuses to employees).

Thus, net profit is always less than net income.