Why is Net Profit a better measure of profitability than Gross Profit?

Question

Why is Net Profit a better measure of profitability than Gross Profit?

What is the formula to calculate Net Profit?

How could a company increase profitability?

Answer 1

Net Profit is more accurate cause it calculates an after tax figure.

I can't remember the formula think it's

Net Profit over Cost Of Sales I think

Answer 2

There's no formula, net just takes into account a profit after all outgoings have been taken into consideration.

It's a better measure than gross because it tells you how much you've actually made or lost in total.

Profitability is generally increased by reducing costs - this wouldn't show any gain in terms of gross profit, but would show up in terms of net income.

Answer 3

Gross profit is the money you make before your overheads are taken off.

Net profit is the money you come out with at the end when all overheads have been taken off (ie bills, wages etc).

There is no formula, it depends what your particular overheads are.