Net Profit and Gross Profit | Formulas, Margin Calculations and How to Interpret Figures Explained

Watch this video if you want to understand how to calculate both net profit and gross profit margins.
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The video provides you with a walk-through of how to calculate the answers using formula, then shows you how to interpret the answers to make financial decisions.
Both gross profit and net profit are key performance indicators for any business and being able to calculate and interpret these is essential for business owners and entrepreneurs alike.
If you are interested in business, then subscribe to our KZbin Channel for lots more Business Studies content. Videos are uploaded weekly, so why not learn everything there is to know about the world of business: / twoteachers
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[@Znation_0124]

Thanks man. Even someone with no business background understands this now thanks for taking us through the ropes. Much appreciated from South Africa

[@TwoTeachers]

This is great to hear, good luck getting started in business!

[@kirstraath2897]

Thank you. Explained nicely

[@TwoTeachers]

You're welcome, glad it helped 👍

[@rexcracin8642]

This is broken down perfectly! Very detailed and easy to comprehend. Much appreciated!👌

[@TwoTeachers]

Glad it was helpful!

[@cecilyngoka9677]

Okay two teacher gross and net profit and revenue

[@cecilyngoka9677]

Good for me

[@phironcjones4057]

I just came across this video is super helpful. Thank you so much.

[@TwoTeachers]

You are so welcome!

[@ainsmas361]

Lovely lovely video, makes things so easy and I love that graphics

[@TwoTeachers]

Thank you, really glad it was useful 😁

[@urah12cury]

thank you so much!

[@TwoTeachers]

Thanks for watching, appreciate it👍

[@sl1ckspurs]

This was superb guys! Thanks kindly for doing this. Keep up the good work.

[@TwoTeachers]

Thankyou very much, really appreciate it. We're only just getting started, lots more business content to come!

[@malikamadouseidoumossi7705]

Wonderful guys. I have found this video more than useful. Thank you so much. I have spent hours searching for explanations before finding this. I have actually downloaded it. Thank you

[@TwoTeachers]

That's fantastic to hear Malik, glad we can help. We've plenty more finance related topics such as cashflow and break even on our channel. Feel free to use & share 😀

[@Mariajehnniel]

Thank you so much

[@TwoTeachers]

You're welcome Jehnniel, glad you found it useful.

[@Louisduffelsdesforges1]

Thank you

[@TwoTeachers]

You're welcome

[@cecilyngoka9677]

Thankful for me and now l understand business planning.

[@TwoTeachers]

Excellent, glad we could help.

[@matthewbaker2486]

Fantastic video

[@TwoTeachers]

Thank you Matthew appreciate you saying that 👍

[@vasilikikafourou8624]

Currently, am the most irrelevant person in this field, but I have a course in which I need to create my personal development plan as a personal trainer, and this video, covered on my mind in just 8 minutes, all that I had to know about profits, expenses, and financial business monitoring/development formulas! Great job guys! I wish you millions of subscribers!

[@TwoTeachers]

Love to hear this Vasiliki, we wish you all the best in your venture as a personal trainer and thank you for the kind words!

[@user-jf9we4fo5x]

Really good honestly❤

[@TwoTeachers]

Great to hear you think so!

[@deborahrose7047]

Thanks

[@TwoTeachers]

No problem, hope it helped!

[@eveningrose8946]

Great video! What’s the name of the song in the background?

[@TwoTeachers]

Thank you, it’s just a generic sound with no copyright on it 🤷‍♂️🤷‍♂️

[@rubinatolopez1097]

well done

[@TwoTeachers]

Thanks mate 👍

[@giantcat4354]

This was a very clear, concise and helpful video. Thanks, subscribing.

[@TwoTeachers]

Glad you found it useful and thanks for subscribing, appreciate it!

[@Ceej16]

thank you so much this has been very very informative i looked at so many different articles about this but none made sense as easily as you have. thank you so much

[@TwoTeachers]

Your are welcome CJ! Really glad we could help you. Best of luck with your studies 👍

[@songkaiying]

I studied enterprise 2 years ago and everything regarding finance just flew over my head. This video refreshed my mind! Thank you so much for making such a comprehensible guide!

[@TwoTeachers]

Glad it was helpful, this is great to hear!

[@brailyramos6892]

@@TwoTeachers But something that i still don't understand is the differences of a gross margin and gross profit margin. Let's say it like this (Gross Margin and Profit Margin vs Gross Profit Margin).

[@imadkaroum1993]

thanks

[@TwoTeachers]

You're welcome!

[@ramens]

Interesting...

[@TwoTeachers]

Extremely interesting...

[@thomasr1051]

Really helpful condensed video with great visuals. You have a very clear voice as well. One note. The music was distracting. I think music is a good edition generally but quiter and lower energy

[@TwoTeachers]

Great to hear that Thomas and this is an older video, we now don't use the music as much, so hopefully you will prefer our new explainer videos.

[@cocoarecords]

amazing

[@TwoTeachers]

Thanks mate

[@bickle0922]

Dahm i was hoping someone would comment the answers

[@TwoTeachers]

Ha, now that would be too easy.

[@efeosaogbonmwan472]

bro is the reason why im passing my exams💀💀

[@TwoTeachers]

Great to hear, hope you get a good grade

[@stelingtonumiong5575]

I want to learn more about business 🙏🏻👍

[@TwoTeachers]

Well we have plenty of videos to get you started 👍

[@jasminetaylor5416]

Your videos are my ' go to' when studying business! Ty so much for all the useful content.

[@TwoTeachers]

Love that! Glad we are helping 👍

[@m77ast]

Next level info.. Thanks guys - Starting to look into this stuff.. I dont know why my accountant always puts my COGS at the bottom.

[@TwoTeachers]

Thanks for the positive feedback, appreciate it. Hope you enjoy the rest of our content.

[@furquanabr2765]

Excellent video, when it comes to expenses are fixed and variable expenses both included?

[@TwoTeachers]

Thank you, glad it was useful! Yes fixed and variable are included in expenses :)

[@Zahra2008.]

i hate maths but now its time to push ourselves 😅 as am taking over a restaurant . very clear explanation . i got this finally. thanks dude and looking forward to watch more of yours. ill subscribe from my phone. 👍

[@TwoTeachers]

Really appreciate that and best of luck with the restaurant 👍

[@stelingtonumiong5575]

Same 🙏🏻👍🤭thought good teacher

[@Josephine-kt6ji]

Thank you very much for the great sharing, it helps me at the right time, appreciate :)

[@TwoTeachers]

Excellent. Glad we could help

[@H2Ojellyfish]

What the difference between gross income and gross profit?

[@TwoTeachers]

Both the same just different terms 👍

[@beautybylulutv1975]

So I am a bit confused, should salaries be paid included in expenses before arriving at the net profit? I would appreciate some clarity on this.

[@TwoTeachers]

That is correct. Salaries are an expense that is deducted from gross profit along with other expenses to arrive at a net profit figure.

[@beautybylulutv1975]

@@TwoTeachers Thanks so much.

[@TwoTeachers]

No problem. Glad we could help 👍

[@WessleyNeal]

Sales revenue is net?

[@TwoTeachers]

Sales revenue is used for both calculations Wessley. what changes is what you deduct from the sales revenue. The gross profit is based on the cost of goods sold which is only one portion of the businesses costs, whereas the net profit deducts the total expenses of the business which will typically result in a lower amount of profit being calculating when using net instead of gross.

[@m77ast]

There is one thing I need help with though. Our organisation makes a lot of products. I see you are using all the products and all the COGS. However I am trying to work out product price since so much of the operating expenses and even staff are shared by the different product divisions. Thanks in advance. In the mean time Im going through the rest of your channel to see other nuggets that I can take away

[@TwoTeachers]

So are you saying, the majority of your fixed costs and overhead expenses are split between different departments/product divisions? If so, the individual costs for each product would have to be calculated through a process called apportionment. Whereby, you calculate how much each expense is used by each department or division i.e. 20% department 1, 35% in department 2 and 45% in department 3. The cost is then split according to these percentages and spread across the units produced per product.

[@m77ast]

@@TwoTeachers you are talking about internal department cost allocations. Management accounting. I was talking about product cost allocation but I guess it can be done the same way we can allocate all our costs as equal percentages or relative percentages over our product lines. People reading this - the moral of the story is that your calculations are done on yearly figures not on daily or weekly. The yearly figures are calculated and then divided down to weeks and days. Hope this helps.

[@TwoTeachers]

@@m77ast brill, hopefully that's clarified the matter, yes I agree, just apportion your costs according to usage etc. where possible to get an accurate price per unit.

[@m77ast]

Yes the problem was that I was analysing the figures at a micro level. But when you look at what’s happening in the year - everything becomes easy. You guys are doing an excellent job. Much appreciated guys. Much appreciated.

[@H2Ojellyfish]

What’s the difference between net profit and net income?

[@TwoTeachers]

Both the same just different ways of saying it. Thanks for watching.

[@RayGBullet]

after a sleepless night i found the video that actually helped me, thank you.

[@TwoTeachers]

Great to hear, now get some sleep! Haha

[@francescotagliavento8081]

what is the gross profit if the elements of the income statemnt look as follows: secondary income 33,000; COGS 68.000; depreciation 500; sales 100,000? a)32,000 b) 20,000 c)32,500 d)25,000 e) none of above answers is correct Someone could help me? I don't know how to calculate that?

[@TwoTeachers]

Hi Francesco, it would be £64,500. 100,000 (sales) + 33,000 (secondary income) - 68,000 (COGS) - 500 (depreciation). Hope that helps.

[@beautybylulutv1975]

Should salaries be paid from gross profit? I need some clarity on this

[@TwoTeachers]

Yes. That is right 😁

[@jesse-hs4xh]

where r u from mr sir.

[@TwoTeachers]

England

[@orental5996]

Hi, thanks for the video I want to make sure I understand so I will share an example of a business that is for sale. Cleaning Businesses: the price is $45,000 | Cash Flow: $26,770 CF | Gross Revenue: $30,000 GR | What does it mean ? What's the net ? is it a good investment?

[@TwoTeachers]

We'd love to help Oren but unfortunately we aren't able to advise on business opportunities for legal reasons. Hope you understand.

[@shanunjamali]

*Isn't it: Gross profit = sales revenue - Cost of goods.* *Then, Net profit = Gross profit - others Costs.*

[@TwoTeachers]

It's as explained in the video.

[@mattiatiberi2471]

With all respect for your work.. I found the video difficult to follow because of the annoying music in the background. I, as a general viewer, either want to learn something or I want to listen to music. Please cut the music, don't stretch the content and you will have less work to do and more subscribers... A total win-win!!!! Cheers

[@TwoTeachers]

Thanks for the feedback Matt, will consider you thoughts 👍

[@michaeljevdokymenko7359]

the music is essential to keep you entertained and not sleepy while watching it as a simple slide show is boring. that's a win-win

[@TwoTeachers]

@@michaeljevdokymenko7359 thanks Michael, each to their own, we like the background music too, keeps us engaged.

[@bilenmesfin1809]

I don't get it ? So you're saying gross profit margin and net profit margin formula are the same 😕 Can you please explain it for me😊

[@TwoTeachers]

Hi Bilen, they are different. They are both based on sales revenue, so that part is the same, but what changes is what you deduct from the sales revenue. The gross profit is based on the cost of goods sold which is only one portion of the businesses costs, whereas the net profit deducts the total expenses of the business which will typically result in a lower amount of profit being calculating when using net instead of gross.

[@bilenmesfin1809]

@@TwoTeachers Thank you

[@TwoTeachers]

@@bilenmesfin1809 you're welcome.

[@jasonheard5293]

Sorry for asking but Isn’t Labour wages ? So classed as a fixed cost ?

[@brailyramos6892]

But something that i still don't understand is the differences of a gross margin and gross profit margin. Let's say it like this (Gross Margin and Profit Margin vs Gross Profit Margin).

[@TwoTeachers]

Gross profit is the money left over after a company’s costs are deducted from its sales. Gross margin is a company’s gross profit divided by its sales and represents the amount earned in profit per dollar of sales. Gross profit is stated as a number, while gross margin is stated as a percentage. This article may help you Braily www.shopify.com/uk/blog/gross-margin-vs-gross-profit

[@brailyramos6892]

​@@TwoTeachers Thank you so much for the link! you're an angel! How that website described it, can't be more simple than that is impossible and if somebody don't understand with that link, I believe they will never understand business.

[@TwoTeachers]

@@brailyramos6892 glad to hear that we've helped you Braily.

[@ScottyUnit69]

Got a business exam tmr im fucked

[@TwoTeachers]

Hope it went well, fingers crossed you passed.

[@dhruvpandya4575]

why cant we just include all expenses in total expenses ad directly subtract it from total sales and get net expense why the fuck we need this gross thing

[@TwoTeachers]

Helps understand how much profit the business is making before expenses are taken away.

[@SPACE6848]

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[@TwoTeachers]

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