Net profit
Net profit is what your business keeps after all costs. Learn how to calculate it and what a good margin looks like.
Published Monday 31 August 2026
Table of contents
Net profit is what the business gets to keep, which makes it one of the most important numbers people look at
Key takeaways
- Net profit is the money your business keeps after you subtract all expenses, including operating costs, interest and taxes, from your total revenue
- Calculating net profit regularly shows whether your business is genuinely profitable
- A healthy net profit margin varies by industry, though many small businesses aim for 10% or higher as a general guide
- You can improve net profit by cutting unnecessary costs, reviewing your pricing and streamlining operations
What is net profit?
Net profit is the amount your business keeps after you subtract all expenses from your total revenue. Those expenses include your cost of goods sold (COGS), operating costs, interest, depreciation and taxes. You may also see it called net income, net earnings or the bottom line.
For a small business in the Philippines, net profit sits at the bottom of your profit and loss statement (P&L) and tells you what the business actually earned over a period. Tracking it helps you see whether your day-to-day trading leaves you with money to reinvest, save or pay yourself.
Net profit vs gross profit vs operating profit
Your profit and loss statement reports profit at three levels, and each one removes a different set of costs. Knowing the difference helps you pinpoint where money is made or lost.
- Gross profit is your total revenue minus the cost of goods sold (COGS)
- Operating profit is your gross profit minus operating expenses, such as rent, salaries and utilities, before interest and tax
- Net profit is what remains after you also deduct interest and tax from operating profit
Operating profit is a useful middle figure because it shows how well the core business runs before financing and tax come into play.
How to calculate net profit
You can calculate net profit in two ways, depending on the detail you have to hand. Both start from your total revenue and end at the same figure:
Net profit = total revenue - total expenses
Net profit = gross profit - operating expenses - taxes - interest - depreciation
To work through it step by step, follow this sequence:
- Add up your total revenue for the period
- Subtract your cost of goods sold (COGS) to get your gross profit
- Subtract your operating expenses, such as rent, wages and utilities
- Subtract any interest you paid on loans or financing
- Subtract the taxes your business owes
- Subtract depreciation and amortisation
A positive result means your business made a profit for the period. A negative result is a net loss, which means your expenses were greater than your revenue.
Net profit example
Here is how the numbers come together for a small Philippine business over a year. The figures below are illustrative:
- Total revenue: PHP 1,200,000
- Cost of goods sold (COGS): PHP 480,000
- Operating expenses: PHP 380,000
- Interest: PHP 20,000
- Corporate income tax: PHP 60,000
- Depreciation: PHP 10,000
Start with gross profit: PHP 1,200,000 in revenue minus PHP 480,000 in COGS gives a gross profit of PHP 720,000. From there, subtract operating expenses (PHP 380,000), interest (PHP 20,000), corporate income tax (PHP 60,000) and depreciation (PHP 10,000) to reach a net profit of PHP 250,000.
What is a good net profit margin?
Net profit margin turns your net profit into a percentage of revenue, so you can compare performance over time or against other businesses. The formula is straightforward:
Net profit margin = (net profit / total revenue) x 100
Using the figures above, that is (250,000 / 1,200,000) x 100, which works out to 20.8%.
What counts as a good margin depends heavily on your industry. Across roughly 5,994 US publicly traded companies, the aggregate net profit margin was about 9.7% as of January 2026, based on NYU Stern data.
Those are averages for US publicly traded companies, so margins for a small business in the Philippines may look quite different. As a general guide, a net profit margin of 10% or higher is solid, while a margin below 5% is worth a closer look at your pricing and expenses.
How to improve your net profit
Improving net profit usually comes down to earning more from each sale or spending less to make it. These steps give you practical places to start:
- Review your pricing regularly to keep it in line with costs and value
- Reduce operating expenses where they no longer earn their keep
- Manage inventory carefully to avoid tying up cash in unsold stock
- Automate repetitive tasks with accounting software
- Monitor your profit and loss statement every month
Small, consistent habits tend to protect your margin more reliably than one-off cost cuts.
Simplify your profit tracking with Xero
Keeping an eye on net profit is far easier when your numbers stay up to date on their own. Xero automates bank reconciliation, expense tracking and profit and loss reporting for businesses in the Philippines, so your figures are ready whenever you need them. Sign up and get one month free to start tracking your profit with less manual work.
FAQs on net profit
Here are answers to common questions about net profit for small businesses in the Philippines.
What is the difference between net profit and net income?
There is no practical difference. Net profit and net income are two names for the same figure: the amount left after all expenses and taxes are deducted.
Do you pay tax on net profit in the Philippines?
In the Philippines, domestic corporations pay corporate income tax of 25%, or 20% for qualified small domestic corporations with net taxable income up to PHP 5 million and total assets up to PHP 100 million, under the CREATE Act administered by the Bureau of Internal Revenue (BIR). Sole proprietors instead report their business income through their annual income tax return to the BIR.
Is net profit calculated before or after tax?
Net profit is calculated after tax. It is the final figure once interest and taxes are deducted, which sets it apart from operating profit, measured before interest and tax.
How often should you review your net profit?
Review your net profit at least monthly. That lets you spot trends and act on them while the numbers are still fresh.
What does a negative net profit mean?
A negative net profit is a net loss, which means your expenses were greater than your revenue for the period. It is a signal to review your costs and revenue.
Related terms
Learn more about net profit
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.