What is the difference between gross profit and net profit?

The distinction between gross profit and net profit is fundamental in understanding a company's financial performance. Gross profit is calculated by subtracting the cost of goods sold (COGS) from total revenue. This figure reflects the amount of money a company makes from its sales after accounting for the direct costs associated with producing its goods or services. Essentially, it provides insight into the efficiency of production and pricing strategies.

Net profit, on the other hand, is the amount remaining after all expenses have been deducted from total revenue. This includes not only the COGS but also operating expenses, taxes, interest, and any other expenses incurred. Therefore, net profit gives a more comprehensive view of a company's profitability, capturing all aspects of its operations, not just production.

The correct choice accurately differentiates these two crucial figures, illustrating that while gross profit focuses on core production profitability, net profit encompasses the overall financial health of the business after all expenditures are considered.