What factors are used to calculate net profit?

• A. Gross revenue and variable costs
• B. Operating profit minus taxes
• C. Operating profit plus FLIP
• D. Total revenue and total expenses

Answer: (C)

The correct response focuses on the crucial components necessary for determining net profit in a business context. To calculate net profit accurately, it is essential to analyze the total revenue generated and the total expenses incurred by the company.

When we discuss total revenue, we refer to all the earnings a business brings in from its operations, sales, and other income sources before any deductions. Total expenses encompass all costs, such as operating expenses, interest, taxes, and depreciation. Subtracting total expenses from total revenue gives a clear picture of the overall profitability of the business, resulting in the net profit figure.

This calculation is vital for stakeholders, as it provides insight into the company’s financial health and its ability to generate profit after all costs are taken into account.