Net profit is the amount of money that a company earns after deducting all its expenses from its revenue. Previously, we have explained both the revenue & expense. Now in this unit, we will explain 'Net Profit.'
Net profit is also referred to as "the bottom line" since it is listed at the bottom of the income statement.
Regardless of the location, size, market attributes & other tangible/intangible factors, a company’s primary objective remains earning consistent profits. It is so because it is the profit out of which the shareholders of a company are rewarded in the form of dividends, capital appreciation & further re-investment into the business.
A company which is not generating profits for a long period is finally forced to close owing to the market forces because sustaining losses for a prolonged period is not what shareholders want.We divide the Net Profit of a company by the total number of shares outstanding for the period to come up with a metric called EPS (Earnings Per Share).
EPS= Net Profit / No. of shares outstanding.