How is net profit calculated?

Net profit, often referred to as the bottom line, is calculated by taking gross profit and subtracting expenses such as taxes and other operational costs. Gross profit itself is the revenue earned from sales minus the cost of goods sold (COGS), which focuses solely on direct production costs.

By subtracting taxes and other related expenses from gross profit, you arrive at the net profit figure that represents the actual profit remaining after all necessary deductions have been made. This calculation is essential for understanding a company's true financial health and profitability, as it considers all costs incurred in generating revenue.

In contrast, the other options either introduce concepts that don't align with the definition of net profit or confuse different financial metrics, which can mislead one in understanding how to assess a company's profit accurately. Thus, the answer that describes net profit as gross profit minus taxes accurately reflects the calculation of net profit.