How is net profit calculated?

Net profit is calculated by taking gross profit and subtracting operating expenses. Gross profit represents the revenue a business generates from sales, minus the direct costs of producing goods or services sold. Operating expenses include all other costs necessary to run the business that aren't directly tied to production, such as salaries, rent, utilities, and marketing expenses.

When you subtract operating expenses from gross profit, you get the net profit, which reflects the actual profit earned by the business after covering all costs necessary for operation. This figure is essential for understanding the overall financial health of a business, as it shows the profitability after all regular business expenses are accounted for.

The other options do not accurately reflect the formula for calculating net profit. For instance, adding operating expenses to gross profit would inaccurately inflate the profit figure, and multiplying gross profit by operating expenses has no relevant financial meaning in this context.