Strictly speaking, this is the business profit accruing to the owners of capital after all costs have been provided for and all other factors of production have received | their due. It is used in accounting to describe the amount remaining from gross profit after all charges in respect of overheads and any other costs, often referred to as extraordinary items, have been deducted. Though this is technically the same as the first definition given, the net profit so calculated will, in the case of companies, S be divided between various providers of capital in proportions determined by the conditions on which this capital was subscribed. If the fixed dividend falling to holders of preference shares absorbs all the current net profit, then the ordinary shareholders, who might be described as the true owners, will not receive any part of that net profit. Net profits per accounts may also differ from net profit for purposes of taxation due to the special rules set out by the Inland Revenue, both as to allowable the Inland Revenue, both as to allowable of calculating certain variable costs. For this reason, the phrase net profit cannot be considered in practice as having a precise meaning.
|Reference: The Penguin Business Dictionary , 3rd edt.|