Net Profit

Net profit is what a company has left after subtracting every cost from its revenue: production, wages, interest and taxes. It sits at the very bottom of the income statement, which is why it is called the bottom line. It is the money the business actually kept.

Large revenue means little on its own. A company earning 300 million on 1 billion of sales keeps far more than one earning 10 million on 10 billion. When you look at a business, ask what was left before you admire how much came in.

Divide net profit by shares outstanding and you get EPS. Divide the share price by EPS and you get the P/E ratio. Most of the measures used to judge whether a stock is cheap or expensive begin with this one number, and dividends are paid out of it too.

Do not rely on net profit alone, though. A one-off gain from selling a building can inflate it in a way that has nothing to do with the actual business. Operating profit is the better read on the core operation, so put the two side by side and ask questions when a year shows a large gap.