Profit is the remaining value of a company through its business activities over a certain period after deducting costs and expenses. It is one of the key indicators of a company’s financial health.
Profit is mainly divided into three types: gross profit, operating profit, and net profit.
In this article, you will learn how to find these profit figures from a company’s financial statements, and you will understand the differences between gross profit, operating profit, and net profit, as well as what they represent.
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Table of Contents
How to calculate profit?
The three types of profits are calculated as follows:
Gross Profit
Gross Profit refers to the remaining value after deducting the Cost Of Goods Sold (COGS) from a company’s revenue. It reflects the direct profitability of a product or service.
The formula is as follows:
Gross Profit = Revenue – Cost of Goods Sold
where,
- Revenue, also known as Total Sales, is a company’s revenue or total sales over a certain period.
- Cost of Goods Sold, or COGS, refers to the direct costs associated with the production of goods sold by a company or the costs associated with the provision of services. This typically includes the cost of raw materials, direct labor costs, and manufacturing overhead.
Operating Profit
Operating profit is the value obtained after deducting the cost of goods sold (COGS) and operating expenses from the company’s total revenue. The calculation formula is as follows:
Operating Profit = Revenue – (COGS + Operating Expenses)
Alternatively, operating profit can also be understood as the balance remaining after subtracting operating expenses from gross profit. The formula is expressed as:
Operating Profit = Gross Profit – Operating Expenses
where,
- Operating expenses refer to all costs required for the company’s daily business operations, including administrative, management, and sales expenses. For example, advertising costs related to sales fall under operating expenses. However, operating expenses do not include interest payable, taxes, and non-operating expenses.
Operating profit reflects the company’s operational efficiency and management level. A high operating profit margin usually indicates that the company performs well in cost control and business operations.
Net Profit
Net profit refers to the remaining value after deducting the cost of goods sold (COGS), operating expenses and other expenses. It is the ultimate measure of a company’s profitability.
The calculation formula is as follows:
Net Profit = Revenue – (COGS + Operating Expenses + Other Expenses)
It can also be understood that net profit is the balance remaining after subtracting other expenses, such as interest and taxes, from the operating profit.The formula than expressed as follows:
Net Profit = Operating Profit – Other Expenses
where,
- Other expenses include taxes, interest, and other non-operating expenses. It should be noted that in some cases, the company may have other income instead of expenses. In such cases, this income needs to be added to the operating profit. Therefore, in some cases, net profit can be greater than operating profit.
Net profit is the company’s final financial result, directly related to shareholder returns and financial health. A high net profit usually indicates that the company has strong profitability and financial stability.
How to get profits from companies’ financial reports?
You can find profits in the financial reports of publicly traded companies. In this article, we use Apple’s (AAPL) annual report as an example.
Below is Apple Inc.’s annual report released in September 2023:
We have summarized the key information into the following table:
| 10-K Option Name | Meaning | September 2029 Value (million) |
|---|---|---|
| Total net sales | Revenue | 383,285 |
| Total cost of sales | Cost of Sales Sold | 214,137 |
| Gross margin | Gross Profit | 169,148 |
| Total operating expenses | Operating Expense | 54,847 |
| Operating income | Operating Profit | 114,301 |
| Other income/(expense), net Provision for income taxes | Other Expenses | 565 + 16,741 |
| Net income | Net Profit | 96,995 |
So.
Gross Profit = Revenue – Cost of Goods Sold
= 383,285 – 214,137
= 169,148
Operating Profit = Gross Profit – Operating Expenses
= 169,148 – 54,847
= 114,301
Net Profit = Operating Profit – Other Expenses
= 114,301 – (565 + 16,741)
= 96,995
By following the same steps, you can find Apple’s profit data for the past ten years and plot it.
The chart below shows the changes in Apple’s net profit over the past ten years:
How to find profit data in brokerage?
Howlifeusa recommends brokers including
Additionally, if you use
Here, we’ll take
Log in to Your IBKR Account:
Go to the Interactive Brokers website or app and log in with your credentials. Click on the option labeled “Fundamentals” located at the top right corner to view the company’s fundamental information.
Navigate to Financials:
In the Fundamentals page, click on the sub-option “Financials”, then click on “Income”, which refers to the income statement. You can choose to view annual or quarterly data.
Scroll to View Profit:
Scroll to view information such as gross profit, operating profit, and net profit.
For example, you can view the historical changes in net profit.
Please note that in the chart below, the plot refers to the Net Profit Before Tax.
Interactive Brokers provides not only important fundamental information such as profits, but also balance sheets, cash flows, and other fundamental data.
After finding data on profits, you can calculate important financial metrics such as profit margin and earnings per share.
These metrics are also included in the financial reports of publicly traded companies.
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