Net profit
Learn what net profit is, how to calculate it and how it's taxed in Singapore, with a worked example.
Published Wednesday 30 September 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 all expenses, including cost of goods sold (COGS), operating expenses, interest and tax
- You work it out by subtracting total expenses from total revenue, and it appears at the bottom of your profit and loss statement
- Gross profit and operating profit leave out some costs, so net profit gives you the fullest view of how profitable you are
- Singapore companies pay corporate income tax at 17% on chargeable income, which is accounting profit adjusted for Inland Revenue Authority of Singapore (IRAS) rules
What is net profit?
Net profit is the money your business keeps after paying every expense, including COGS, operating expenses, interest and tax. It's also called net income or the bottom line.
The name "bottom line" comes from where net profit sits: the last line of your profit and loss statement. It's the clearest single measure of whether your business is making money.
A positive figure means your business earns more than it spends. A negative figure means you're running at a loss, which is a signal to review your pricing, your costs or both.
Net profit formula
The net profit formula gives you a quick way to measure how profitable your business is. At its simplest, it looks like this:
Net profit = total revenue − total expenses
You can also break expenses into their main categories to see exactly where your money goes:
Net profit = total revenue − COGS − operating expenses − interest − taxes
COGS covers the direct costs of making your products or delivering your services. Operating expenses include rent, utilities, wages, marketing and insurance, while interest covers any loan or credit repayments.
Taxes cover the income tax your business pays to IRAS. Companies pay corporate income tax at a flat 17% of chargeable income, according to IRAS corporate income tax rates.
How to calculate net profit
Calculating net profit is simple once you know where to find the right numbers. Follow these five steps for any period you want to review.
- Add up your total revenue. Include all sales, service fees and other earnings for the period. If you're unsure, check what counts as revenue.
- Calculate your COGS. Add the direct costs of producing your goods or services, such as materials, stock purchases and direct labour.
- Add up your operating expenses. These are the day-to-day costs of running your business, like rent, utilities, wages, insurance and marketing.
- Include interest and tax. Add any interest you've paid on business loans or credit, plus your tax for the period.
- Subtract all expenses from your total revenue. The result is your net profit, or a loss if the number is negative.
If you use Xero accounting software, your profit and loss report does this maths for you. You can view your net profit for any period in a few clicks.
Net profit example
A worked example makes the formula easier to follow. Say you run a small cafe in Singapore that earned S$120,000 in food and drink sales last quarter.
Your costs for the same quarter looked like this:
- Cost of goods sold (ingredients, coffee beans, packaging): S$40,000
- Operating expenses (rent, wages, utilities, insurance, marketing): S$55,000
- Interest on a business loan: S$2,000
- Tax: S$5,000
Using the formula:
Net profit = S$120,000 − S$40,000 − S$55,000 − S$2,000 − S$5,000 = S$18,000
Your cafe's net profit for the quarter is S$18,000, the amount you kept after covering every business expense. You can use it to plan next quarter, build savings or reinvest in the business.
Net profit vs gross profit
Net profit and gross profit are easy to mix up because they both start with revenue. The difference is how many costs you take away.
Gross profit is revenue minus COGS. It shows whether your core products or services make money before overheads, interest and tax.
Net profit subtracts every expense, so it shows your complete result. You can see both figures side by side in this sample profit and loss report.
In the cafe example, gross profit is S$120,000 − S$40,000 = S$80,000. After operating expenses, interest and tax, that drops to a net profit of S$18,000, which is what you take home.
Net profit vs operating profit
Operating profit sits between gross profit and net profit on your profit and loss statement. It's gross profit minus operating expenses, calculated before interest and tax.
Operating profit shows how well your day-to-day trading performs, whatever your loans or tax position. Net profit then takes off interest and tax to show what's left for you.
In the cafe example, operating profit is S$80,000 − S$55,000 = S$25,000. Subtract S$2,000 interest and S$5,000 tax, and you reach the same S$18,000 net profit.
What is net profit margin?
Net profit margin turns your net profit into a percentage of revenue. That makes it easier to compare your performance across periods, even when sales rise or fall.
The formula is:
Net profit margin = (net profit ÷ total revenue) × 100
For the cafe, that's (S$18,000 ÷ S$120,000) × 100 = 15%. For every dollar the cafe earns, you keep 15 cents after all expenses. You can also work it out with the net profit margin calculator.
A common rule of thumb treats about 5% as low, 10% as healthy and 20% as high, according to Brex. Margins vary widely by industry, so compare yours with similar businesses.
Net profit margin is one of several profitability ratios lenders and investors use to judge how efficiently a business runs. A rising margin suggests you're running more efficiently, while a falling one may point to rising costs or pricing issues.
Net profit and tax in Singapore
The net profit in your accounts is usually the starting point for tax. IRAS then applies its own rules, so the figure you're taxed on can differ from your accounting profit.
Companies
Companies pay corporate income tax on chargeable income rather than on the net profit shown in their accounts. Chargeable income is your accounting profit adjusted for tax rules, for example by adding back expenses that aren't deductible, as explained in IRAS guidance on preparing a tax computation.
Sole proprietors and partners
If you're a sole proprietor or partner, you report your business income in your personal income tax return. The format depends on your revenue, according to IRAS guidance on calculating business income.
Here's how the two formats compare:
- Revenue of S$200,000 or less: a 2-Line Statement showing revenue and adjusted profit or loss
- Revenue above S$200,000: a 4-Line Statement showing revenue, gross profit or loss, allowable business expenses and adjusted profit or loss
Tax adjustments can be detailed, so check with an accountant before you file. They can confirm which expenses are allowable and how to report your profit.
Why net profit matters for your business
Knowing your net profit helps you make better decisions about running and growing your business. It shows whether your business model can keep going over time.
A business can turn over millions and still run at a loss when expenses are too high. Net profit, together with your profit margin, shows the real result behind your sales.
It also matters when you need outside support. Banks review net profit when assessing loan applications, and investors and buyers use it to value your business.
Day to day, tracking net profit helps you spot trends early. Learning to measure profitability is a good first step, and a profit and loss template makes regular tracking easier.
Common net profit mistakes
Small errors can make your net profit look healthier or weaker than it is. Watch out for these common mistakes when you do the maths.
- Mixing up gross and net profit, which can make your business look more profitable than it is
- Combining personal and business costs, which distorts your expenses and complicates your tax return
- Leaving out interest or depreciation, which overstates your profit
- Comparing different time periods, such as a quarter against a full year
How to improve your net profit
Improving net profit comes down to earning more, spending less or both. These practical ways to increase profits can help your small business keep more of what it earns.
- Review your pricing. Small price rises can lift your bottom line, especially if your costs have gone up since you last set prices.
- Cut unnecessary expenses. Go through your operating costs line by line, cancel unused subscriptions and renegotiate supplier contracts.
- Improve your gross margin. Negotiate better supplier prices, reduce waste or find more cost-effective materials to lower your COGS.
- Automate repetitive tasks. Use Xero to automate bookkeeping, invoicing and bank reconciliation, saving time and reducing costly errors.
- Offer online invoice payments. Xero customers who use online invoice payments get paid up to twice as fast, which keeps more cash in your business.
- Check your numbers against your budget. Compare your profit and loss report with your budget each month so you can fix overspending early.
Track your net profit with Xero
Your net profit is most useful when you can check it any time and act on it. Xero pulls your revenue and expenses into real-time financial reports, so you always know where your business stands.
Automated bank feeds keep your numbers up to date, and you can share your reports with your accountant in real time. Sign up today to get one month free.
FAQs on net profit
Here are quick answers to common questions about net profit.
Is net profit the same as net income?
Yes, net income is another name for net profit. Just keep it separate from income on its own, which usually means money earned before any costs come out.
Is net profit calculated before or after tax?
Net profit is calculated after tax. The figure before tax is called profit before tax, and it's useful for comparing businesses with different tax positions.
How often should you calculate net profit?
Monthly works well for most small businesses, with a full-year figure for tax filing. If your sales are seasonal, compare each month with the same month last year.
Can a business have a net profit but still run short of cash?
Yes, because net profit counts sales when you invoice them, before customers pay. Unpaid invoices, loan repayments and stock purchases can drain your bank balance even when you're profitable.
Related terms
Learn more about net profit
Handy resources
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Margin calculator
Calculate your gross profit margin with this simple calculator to check you’re hitting your targets.
Financial reporting
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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.