Gross Profit

Gross profit is the total revenue generated from sales minus the cost of goods sold (COGS). It represents the profit a company makes from its core business activities, excluding other expenses such as operating costs, interest, and taxes. Gross profit is a key measure of a company’s financial performance, showing how effectively it produces and sells its products. It serves as the foundation for calculating gross margin and net profit.

Example

A retailer sells products worth $200,000 and incurs COGS of $120,000, resulting in a gross profit of $80,000, indicating the amount earned from core operations before other expenses.

Key points

• Represents revenue minus the cost of goods sold.

• Reflects the profit made from core business activities.

• Used to assess the efficiency of production and sales operations.

Quick Answers to Curious Questions

How is gross profit used in financial analysis?

Gross profit is used to evaluate a company’s core profitability, providing insights into production efficiency and pricing strategy.

What factors can impact gross profit?

Factors include changes in sales volume, production costs, pricing strategies, and the cost efficiency of goods or services sold.

How does gross profit differ from net profit?

Gross profit excludes operating expenses, interest, and taxes, while net profit accounts for all costs, providing a comprehensive view of overall profitability.