What’s the difference between Net Sales & EBIT%, Operating Profit/Profit(loss)?


Hi guys!

I’m trying to understand from an annual report of a company how they are different and which one gives more information of a company?

Such as regarding a segment of a company for example LOTTE having different business segments and to see the performance of them, which is better?

I searched a lot on YouTube and Google as well but the information feels scattered for a beginner like me and I’m really confused! I need to make some bar charts soon and provide a proper explanation.

PS: I don’t have any background in business I’m a fine art student but cuz of one of the member who was supposed to fulfill this task is sick now, I have to do it.

I’ll appreciate a lot if you could help! Please either comment here or dm I’ll send you the picture of where I’m stuck at.

In: 2

2 Answers

Anonymous 0 Comments

As a quick background, we’ll make a company that makes soap bars.

Net Sales(also known as Total Revenue) is all of the revenue you make from selling bars. You sell 100 bars for $2 each, and you make Net Sales of $200. I try to remember the difference between Net and Gross like this: I pull up my Net full of fish. I then throw back the Gross stuff because I can’t eat it.

Gross Profit is what you get after subtracting the DIRECT cost of making the bars(Cost of Goods Sold). It costs $1 per bar for labor and machines, so you subtracting $100, leaving you with $100 in GP.

Operating Profit is what you keep from your GP after paying rent and utilities, as well as your advertising group and accountants, etc etc(Selling, General, and Administrative Expenses). This is also known as Earnings Before Interest and Taxes (EBIT). Let’s say your costs are $50 here. This cost doesn’t directly scale with production like how COGS does, so this is an INDIRECT cost or overhead cost.

EBIT Margin is EBIT divided by Net Sales. This tells you how much money you’re making at this point from how much money you’re putting in. If you walk with $50 profit from $200 of sales like above, your EBIT Margin is 25%. So you could quickly assume that if you sold $400, you might stand to make $100 of profit.

Finally, Net Income(sometimes referred to as Profit/Loss) is what you take away after paying interest fees for investments and taxes on everything. This is the final takeaway for the period. If I invested $2 in a dishsoap company that did well and made me $5 back after interest fees, I made $55, which then gets taxed by 10%, leaving me with $49.50 for the period. So after all of this, my Net Income is $49.50.

Hoping this helps and that I didn’t misinterpret your question.

**edited for additional info and clarity**

Anonymous 0 Comments

Financial statement analysis is the term for what you’re doing and it is generally introduced as a semester long college level course in accounting/business/economics. (* not an introductory course)

There is no such thing as “better” when looking at the different numbers. That is like analyzing an animal and saying the leg is “better” than the stomach. Each component gives an indication of different aspects of the company and each measure is important to get a full picture of how a company is doing.

Net Sales = how much customers bought from the company

EBIT% = Earnings before Interest and Taxes as a % of Sales

Operating profit = Net Sales – Operating Costs (what is operating costs differs by company). If the number is positive, then the company has an operating profit; if negative then the company has an operating loss.

Look up websites like [investopedia.com](https://investopedia.com) But this is not exactly an easy task without the background.