What are net profits?

• A. The revenue after taxes only.
• B. The remaining earnings after deducting all production, marketing, distribution fees, overhead, and interest from the gross revenue.
• C. The total gross revenue before costs.
• D. The money paid to investors regardless of profit.

Answer: (B)

Net profits are the earnings left after subtracting all costs from gross revenue. Start with gross revenue and deduct the costs involved in bringing a product or service to market—production, marketing, distribution, as well as overhead and interest. What remains is the net profit. This contrasts with gross revenue (the total income before any costs) and with payments to investors, which are distributions of profits rather than the profit itself. Taxes are often treated as part of the costs when calculating net income, but the essential idea is the residual amount after these expenses are subtracted.