What is the formula for calculating Net Profit?

The correct formulation for calculating Net Profit revolves around the distinction between Gross Sales and various costs associated with generating that revenue. Net Profit is achieved by taking the Gross Sales and significantly accounting for the Costs of Goods Sold (COGS), which represent the direct costs attributed to the production of the goods sold by a company.

Net Profit provides a clearer understanding of a business's profitability after accounting for the costs directly tied to sales, offering insight into the efficiency of how a company manages production and sales. It is important to note that simply subtracting COGS from Gross Sales reflects the gross margin, which is essential but not sufficient for determining the net profit. To truly assess profitability, one must consider additional operating expenses (like rent, salaries, and utilities) subtracted from this figure in a more comprehensive calculation.

Understanding the role of Gross Sales as the total revenue generated from sales before any expenses are deducted is crucial. This context clarifies why the chosen answer accurately identifies the Net Profit calculation, encapsulating both revenue generation and the direct costs associated with sales, leading to a more accurate measure of the business's financial health.