What is Gross Profit?
Gross profit, often referred to as ‘gross margin’ or ‘gross profit margin’, is the difference between total sales revenue and cost of goods sold (COGS). It is a measure of a company’s financial performance and is used to calculate its profitability. Gross profit should not be confused with net profit, which is the amount of money a company keeps after subtracting all expenses, including taxes, from its total revenue.
Gross Profit Formula
The formula for calculating gross profit is: Gross Profit = Total Revenue – Cost of Goods Sold This formula can be used to calculate the gross profit of a company’s entire business or of any individual product or service.
Examples of Gross Profit
Let’s look at a few examples of gross profit:
- A company has total sales of $10,000 and cost of goods sold of $3,000. The gross profit is $7,000.
- A restaurant has total sales of $20,000 and cost of goods sold of $7,500. The gross profit is $12,500.
- A store has total sales of $30,000 and cost of goods sold of $13,500. The gross profit is $16,500.
Conclusion
Gross profit is an important metric for businesses and investors alike. It is a measure of a company’s financial performance and can be used to compare the performance of different companies or products. Gross profit should not be confused with net profit, which is the amount of money a company keeps after deducting all expenses, including taxes, from its total revenue. For more information on gross profit, you can visit the following resources: