Notes

How do you calculate gross and net pay?


Gross profit assesses a company's ability to earn a gain while simultaneously managing its production and labor costs. Consequently, it's a significant metric in determining why a company's profits are increasing or decreasing by considering sales, production costs, labor costs, and productivity. If a company reports an increase in revenue, but it's more than offset by an increase in production costs, such as for instance labor, the gross profit will undoubtedly be lower for that period.

Like, if your company hired too little production workers for its busy season, it would result in more overtime buy its existing workers. The result will be higher labor costs and an erosion of gross profitability. However, using gross profit as an overall profitability metric would be incomplete since it doesn't include every one of the other costs involved with managing a successful business.

On the other hand, bruto netto berekening net income represents the profit from all aspects of a company's business operations. Consequently, net income is more inclusive than gross profit and can offer insight in to the management team's effectiveness.

As an example, an organization might increase its gross profit while simultaneously mishandling its debt by borrowing too much. The additional interest expense for servicing the debt could result in a lowering of net income despite the company's successful sales and production efforts.

Limitations of Gross Profit and Net Income
Gross profit may have its limitations since it doesn't apply to all companies and industries. For example, a services company wouldn't likely have production costs nor costs of goods sold. Although net income is probably the most complete measurement of a company's profit, it too has limitations and can be misleading. For instance, in case a company sold a building, the money from the sale of the asset would increase net income for that period. Investors looking only at net income might misinterpret the company's profitability as a rise in the sale of its goods and services.

Operating Profit, Gross Profit, and Net Income
It's important to notice that gross profit and net income are just two of the profitability metrics available to determine how well an organization is performing. Like, operating profit is just a company's profit before interest and taxes are deducted, which is why it's known as EBIT or earnings before interest and taxes. However, when calculating operating profit, the company's operating expenses are subtracted from gross profit. Operating expenses include overhead costs, such as the salaries from the corporate office. Like gross profit, operating profit measures profitability by having a slice or portion of a company's income statement, while net income includes all aspects of the income statement.
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