What is the difference between income and profit?

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Some people intend for the terms income and profit to have the same meaning. For example, the income statement was commonly referred to as the profit and loss (P&L) statement. When a company is profitable, we mean that the company has a positive net income.

To aid in understanding these terms, the word "net" is often added. Hence, we often see the terms net income and net profit. This communicates that the amounts are the remainder after expenses have been deducted. For example, a company's profit margin is often listed as the net profit margin (which is defined as the company's net income divided by its net sales). The word "net" also helps to distinguish a company's net profit from its gross profit, and its net profit margin from its gross profit margin.

Some people use the term income to mean revenues. For example, a bank or an individual will often refer to the interest they earn on bond investments as interest income or investment income. A retailer will refer to the sales of merchandise as revenues, but the revenues from secondary activities will be reported as other income ornonoperating income.

It is wise to keep in mind that different meanings are not unusual among people, businesses and countries.

What Is the Difference Between Net Income & Net Profit After Tax?

As a manager or an investor, it is important that you understand what net income, or net profit, is and where to find this information. You should also understand what effects taxes have on a company's profits. To do such, you can examine the net income before taxes and the net profit after taxes.

Net Income

Net income appears on the company’s statement of income. It is the amount that remains after adding together all revenues and subtracting all expenses, including cost of goods sold and income taxes. It is important to differentiate between revenues and income, as revenues are the earnings of the company before subtracting expenses.

Significance

Net income is a quick indicator of the financial health of a company. However, a net loss in one accounting period is not necessarily detrimental to the organization. It may be a period of growth in which the company makes several large purchases. Over time, as an investor or a manager, you would like to see the net income of the company increase. Therefore, it is important to compare it to prior periods and to research any reasons for a decline or loss.

Net Profit After Taxes

Net profit after taxes is the net income of the organization less all taxes. It is the sum of all revenues less all expenses, including cost of goods sold and all taxes. While it is almost the same as net income, this terminology frequently appears on the company’s financial statements in order to differentiate between profits before and after subtracting taxes.

Significance

Managers and investors want to see the effects that taxes have on the company’s bottom line. Often you will see the “earnings before interest and taxes” also appear on the organization’s statement of income. This shows the true profits of the company before paying any interest on loans or bonds, and prior to paying taxes. If the company is paying a significant amount in taxes, management may look for ways to reduce tax payments.