What is a net profitability formula?

  • 3 min read
  • Last updated 3 Oct 2023

Net profitability formula. We wish we could say ‘the clue’s in the name.’ But, it’s really not. In fact, understanding Net profitability formula is quite a mystery. 🔮

So, put on your glasses, pink tights, orange scarf, or green tee, and get the gang in the van because we’re about to solve it. 🚐

Oh, and don’t forget to bring your very own Scooby Doobie Doooo! 🐕

What does net profit mean?

Net profit is a business’s total earnings after deducting all expenses. These may include: 

MaterialsCredit card fees on customer purchases
Direct labourUtilities for the production site
Commissions for sales staffShipping
EquipmentOffice rent

Jinkies! The next clue is waiting for us. 

What’s the net profitability formula?

Net Profit = Total Revenue – (Total Expenses + Taxes + Depreciation)

Zoinks! There’s some more mysterious words here. Let’s put our investigative skills to the test. 🔍

  • Revenue is the amount of money made from sales of a company’s products and/or services during a specific time period (normally a year), before any expenses, taxes etc. are deducted. 📅
  • Depreciation recognizes that assets decline in value over time and it spreads their cost over their useful life. 📉

How to use the net profitability formula 

Net profit is used to indicate a company’s profitability.

Here’s an example:

Total Revenue £5,000
Cost of Goods Sold £2,000
Gross Profit £3,000
Total Expenses £1,000
Salaries £500
Rent £400
Utilities £100
Taxes £500
Net Profit £3,400

Remember, Net Profit = Total Revenue – (Total Expenses + Taxes + Depreciation)

So, £5,000 – (£1,000 + £500 + £100) = a Net Profit of £3,400. 

We’ve got you, gang💪

Where is net profit on SA302?

The SA302 (tax calculation) form shows how much money you’ve earned and how much tax you’ve paid in the past 4 years. Finding net profit on your SA302 is another mystery to solve because it’s not actually there. You’ll need to take the figures for your total revenue, expenses, taxes, and depreciation from the form to calculate your net profit. 

You’ll need one if you’re self-employed and you want to prove your income because you’re applying for a mortgage or loan. 🏡

You can get a SA302 form from: 

  • Your HMRC online account, in the ‘Self Assessment’ section
  • HMRC by calling them and asking them to send a copy to the bank
  • Your accountant
  • TaxScouts, if you’re one of our customers

What do I need to keep track of to calculate my net profit? 

There’s a very logical explanation for all this! 💡Our free bookkeeping tools

Your final mission is to keep track of your business’s income and expenses. You’ll need these to calculate your net profit. 

Our accounting software gives you a 360 view of your finances. With everything all in one place, you can keep track of the income you’ll need to calculate your net profit. 

Upload pictures of your receipts directly to TaxScouts and let our AI-powered data extraction tool pull your spending. Store them online until you’re ready to deduct them. 

Find out more on how our free bookkeeping tools can help keep your mysteries at bay 👇

We did it gang! 

Jeepers! That was a lot to solve. 

But, armed with your new knowledge and bookkeeping tools, there should be no more mysteries for a while. 🤞

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  • Save money, time and effort
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