Dictionary / Financial statements
What Is Gross Profit?
Gross profit is revenue minus the direct cost of making what you sold. It shows how much money is left to pay for everything else.
How to calculate gross profit
Revenue−Cost of goods sold=Gross profit
A shoe shop sells $100,000 of shoes. The shoes cost it $60,000 to buy. Its gross profit is $40,000. Rent, staff and ads are not taken out yet.
Gross profit vs net profit
Gross profit only removes the cost of goods sold. Net profit removes everything: running costs, interest and taxes. A company can have big gross profit and still lose money overall.
Why it matters
Gross profit pays for everything else in the business. As a share of sales, it is called gross margin, one of the best signs of pricing power.
See it in real companies
Open a company to see what it sells and how it makes money.