Important financial concepts

Net profit definition:

Often referred to as the bottom line, net profit is calculated by subtracting a company's total expenses from total revenue, thus showing what the company has earned (or lost) in a given period of time (usually one year). also called net income or net earnings.

                                                          OR

Amount of money earned after all expenses, including overhead, employee salaries, manufacturing costs, and advertising costs, have been deducted from the total revenue.

Price Earning Ratio

A valuation ratio of a company's current share price compared to its per-share earnings.

Calculated as:         

                                      Market value per share

                                      ------------------------

                                      Earnings per share (EPS)

Gross Profit Ratio

Gross profit divided by net sales. High ratios are favorable in that they indicate the business is earning a good return on the sale of its merchandise, although that may also invite competition.

Gross profit ratio:

                                      Gross profit

                                      --------------

                                      Net Sales