Net profit (also called net income or the bottom line) is your total revenue minus all expenses, including COGS, operating expenses, interest and tax. It is the final profit figure.
Net profit is the ultimate measure of your business's profitability - it is what remains after every expense has been deducted from revenue. The calculation flows through the profit and loss statement: Revenue minus COGS equals Gross Profit, minus Operating Expenses equals Operating Profit (EBIT), minus Interest equals Profit Before Tax, minus Tax equals Net Profit. Net profit is the amount available for distribution to owners (as dividends or drawings) or retention in the business for future growth. The net profit margin (net profit divided by revenue) tells you what percentage of revenue translates to actual profit. A healthy net profit margin varies by industry but typically ranges from 5% to 20% for small businesses. Monitoring net profit trends over time reveals whether your business is becoming more or less profitable. Declining net profit despite rising revenue suggests costs are growing faster than sales. SortBooks provides real-time net profit visibility and trend analysis, so you always know where you stand.
SortBooks helps with the bookkeeping behind net profit by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing net profit by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
Gross profit is your revenue minus the cost of goods sold (COGS). It shows how much money remains from sales after covering direct production or purchasing costs.
Revenue (also called sales, income or turnover) is the total amount earned from selling goods or services before any expenses are deducted. It is the top line of the P&L.
Operating expenses are the day-to-day costs of running your business, excluding COGS. They include rent, wages, utilities, marketing, insurance and administrative costs.
EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortisation. It measures operating profitability by excluding non-operating expenses and non-cash charges.
The P&L (also called the income statement) shows your business revenue, expenses and resulting profit or loss over a specific period.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.