Accounting Profit Calculator
Enter your revenue and cost figures to calculate accounting profit and all three profit margins. The calculator breaks costs into cost of goods sold, operating expenses, interest, depreciation, and taxes so you can see exactly where money is going. A breakdown chart shows how each layer of costs and profit compares, and a worked-steps panel shows the math with your numbers.
Formula
Worked example
A business with $500,000 revenue, $200,000 COGS, $100,000 operating expenses, $20,000 depreciation, $15,000 interest, and $30,000 taxes: Gross Profit = $300,000 (60% margin). EBIT = $300,000 - $100,000 - $20,000 = $180,000 (36% margin). Net Income = $180,000 - $15,000 - $30,000 = $135,000 (27% net margin).
What is accounting profit?
Accounting profit is the money a business keeps after subtracting all explicit costs from total revenue. Explicit costs are the actual cash outflows recorded in the books: the cost of goods sold, wages and salaries, rent, utilities, marketing, depreciation, loan interest, and corporate taxes. This is the figure reported on an income statement and is sometimes called net income or net profit. It differs from economic profit, which also subtracts implicit costs such as the opportunity cost of the owner's time and capital deployed elsewhere. Accounting profit follows the matching principle under Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), meaning revenues and the costs that generated them are recorded in the same period regardless of when cash changes hands.
The income statement waterfall: gross, operating, and net profit
Profit is not one single number; it is a layered cascade. Starting from revenue, subtracting the cost of goods sold (COGS) gives gross profit, the first test of whether the core product or service is inherently profitable before overhead. Deducting operating expenses from gross profit gives EBITDA (earnings before interest, taxes, depreciation and amortisation), which measures cash-generating capacity without the impact of financing and non-cash charges. Subtracting depreciation gives operating profit (EBIT), the profit purely from operating activities. Removing interest expense gives the pre-tax profit, and after income tax you arrive at net income, the accounting profit. Each step isolates a different source of cost and gives managers a specific lever to pull.
Accounting profit versus economic profit
Economists define profit more broadly than accountants. Economic profit subtracts both explicit costs and implicit costs from revenue. Implicit costs include the opportunity cost of capital invested (what that money could earn elsewhere, for example in a risk-free bond or an index fund) and the value of the owner's time if they could earn a salary working elsewhere. A business can show a healthy accounting profit yet earn zero or negative economic profit if the implicit costs are large. For example, a restaurant owner who earns $80,000 accounting profit but could otherwise earn $90,000 as an employee has a negative economic profit of -$10,000. This calculator lets you enter an opportunity cost to compare both figures side by side.
How to use the accounting profit formula
The fundamental formula is: Accounting Profit = Total Revenue - Total Explicit Costs. Total explicit costs include COGS (materials, direct labour, manufacturing overhead), operating expenses (salaries, rent, marketing, administration), depreciation and amortisation (non-cash but still an expense), interest expense (cost of debt), and income tax. To interpret your results, compare each margin to industry benchmarks. A 5% net margin is strong in grocery but weak in software. Tracking these margins over time reveals whether cost discipline is improving or eroding. A gross margin falling while revenue rises suggests COGS is growing faster than pricing power.
Net profit margin benchmarks by industry
| Industry | Typical Net Margin | Notes |
|---|---|---|
| Software / SaaS | 15% - 30% | High gross margin, scalable model |
| Retail (general) | 2% - 6% | High volume, thin margins |
| Grocery / supermarket | 1% - 3% | Very high volume, very thin margins |
| Professional services | 10% - 20% | Labour-intensive, moderate margins |
| Manufacturing | 5% - 12% | Capital-intensive, moderate margins |
| Healthcare / pharma | 10% - 20% | R&D heavy, regulatory costs |
| Construction | 2% - 6% | Project-based, variable costs |
| Financial services | 15% - 30% | Leverage-driven, higher margins |
| Restaurants / food service | 3% - 9% | High COGS and labour costs |
Typical net profit margin ranges vary widely by sector. Use these as rough benchmarks only.
Frequently asked questions
What is the difference between accounting profit and net income?
They are the same thing under different names. Net income (also called the bottom line) is the term used on income statements, while accounting profit is the term preferred in economics and finance textbooks. Both equal revenue minus all explicit costs including taxes.
Is depreciation included in accounting profit?
Yes. Depreciation is an explicit cost under accounting rules even though it involves no cash outflow in the current period. It reduces taxable income and therefore net income. Including depreciation in this calculator gives a more accurate accounting profit figure than simply subtracting cash expenses.
Can accounting profit be positive while economic profit is negative?
Yes, and this is common for small owner-operated businesses. If an owner works full-time in the business but pays themselves no salary, the accounting profit looks attractive. However, if that same owner could earn $80,000 as an employee elsewhere, the opportunity cost is $80,000. If the accounting profit is only $60,000, economic profit is -$20,000, meaning the owner would be financially better off working for someone else.
What is a good net profit margin?
It depends heavily on industry. Software companies often achieve 20% or more; grocery chains consider 2% acceptable; professional services firms typically fall between 10% and 20%. Rather than comparing to an absolute target, compare to your own historical margins and to direct competitors in the same sector. The reference table above shows broad benchmarks by industry.
How is accounting profit different from cash flow?
Accounting profit uses the accrual method: revenue is recognised when earned and costs when incurred, regardless of when cash changes hands. Cash flow records only actual cash received and paid. A business can be profitable on paper while experiencing a cash crunch if customers pay slowly, or unprofitable on paper while cash-flow positive if it is collecting cash before recognising revenue. Both views are necessary for a complete picture of financial health.
What are explicit costs?
Explicit costs are the direct, tangible monetary payments a business makes to operate: purchasing raw materials, paying wages, rent, utilities, marketing spend, equipment maintenance, loan interest, and taxes. They are "explicit" because they appear as actual entries in the accounts. Implicit costs, by contrast, are the value of resources the business uses but does not pay for in cash, such as the owner's own time or equity capital.