What is the difference between NOR and Net Profit?

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    Valerie Galchenko

    (Gross) profit is revenue prior to substracting any expenses, tax, and interest.

    (Net) profit is the remaining income of the company after paying all costs incurred by the company, including all expenses, tax, and interest.

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    Michael Ermann

    NOR is what you have left after your client pays you and you’ve subtracted plotter expenses travel expenses and that 200k payment to your MEP engineer…it’s the revenue after external, reimbursable, project related expenses that you have to work with when running your business.

    Net profit is is what you have left after your client pays you and you’ve subtracted plotter expenses travel expenses and that 200k payment to your MEP engineer…AND subtracted what you paid the draftsman who worked on that project, the marketing dept for winning the project, the health insurance for the principal, and the cost of repairing the plotter when it broke last month…it’s what you have in your pocket after all expenses as the owner of a firm. It’s the profit.

    It may be a bit easier to understand when thinking about a store that sells sweatshirts…net operating revenue is what’s left over after you pay the sweatshirt manufacturer….net profit is what’s left over after ALL your expenses.

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    German Avila

    So Michael, what is the difference between profit and net profit?

    Thanks,

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    Michael Ermann

    often when we say “profit” we are talking about net profit, but accounting is fuzzier than you might think. We may, for instance, want to measure our gross profit (how much we have left over after paying our team for only billable hours (direct expenses) but before we subtract overhead (indirect expenses))…and if we specify “NET” profit we should subtract indirect costs and even subtract what we pay in taxes. What we measure kind of depends on what information we want to make a decision …gross profit may help us decide if we want to take on a high profile project that may lose our firm a bit of money (but hopefully we can cover our billable hours with fees) …by contrast, if you are buying another architecture firm, you’ll for sure want to know their net profit so you can price the acquisition based on how much money it will put in your pocket after EVERYTHING is subtracted …but as an aside, even something as seemingly clear cut as net profit….two accountants can measure those differently because accounting is actually creative! And of course you can report BOTH gross AND net profit on something like a profit-and-loss statement. It’s not like you have to choose between measuring one or the other.

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    Rakan Ayyoub (Edited )

    Revenue - (Reimbursable + Non-Reimbursable Fees + Engineering Consultant Fees) = NOR

    NOR - (Direct Labor + Indirect Labor + Other Expenses) =  Profit  

    Net Profit = Profit - ( Misc Revenue + Misc Expenses)

    Current Earnings = Net Profit - (Partner Profit Distributions + Taxes) 



     

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