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Gross profit

 

 
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Gross profit
 
 
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In accounting, gross profit or sales profit is the difference between revenue
Revenue

In business, revenue or revenues is income that a corporation receives from its normal business activities, usually from the sale of product to customers....
 and the cost of making a product or providing a service, before deducting overhead
Overhead (business)

In business, overhead, overhead cost or overhead expense refers to an ongoing expense of operating a business. The term overhead is usually used to group expenses that are necessary to the continued functioning of the business, but do not directly generate profits....
, payroll
Payroll

In a company, payroll is the sum of all financial records of salaries, wages, bonuses and deductions....
, taxation, and interest
Interest

Interest is a fee paid on borrowed assets. It is the price paid for the use of borrowed money , or, money earned by deposited funds .Assets that are sometimes lent with interest include money, shares, consumer goods through hire purchase, major assets such as aircraft finance, and even entire factories in finance lease arrangements....
 payments. Note that this is different from operating profit
Earnings before interest and taxes

In financial and business accounting, earnings before interest and taxes is a measure of a firm's profitability that excludes interest and income tax expenses....
 (earnings before interest and taxes).

Net sales are calculated:

Net sales = Sales – Sales returns and allowances.






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In accounting, gross profit or sales profit is the difference between revenue
Revenue

In business, revenue or revenues is income that a corporation receives from its normal business activities, usually from the sale of product to customers....
 and the cost of making a product or providing a service, before deducting overhead
Overhead (business)

In business, overhead, overhead cost or overhead expense refers to an ongoing expense of operating a business. The term overhead is usually used to group expenses that are necessary to the continued functioning of the business, but do not directly generate profits....
, payroll
Payroll

In a company, payroll is the sum of all financial records of salaries, wages, bonuses and deductions....
, taxation, and interest
Interest

Interest is a fee paid on borrowed assets. It is the price paid for the use of borrowed money , or, money earned by deposited funds .Assets that are sometimes lent with interest include money, shares, consumer goods through hire purchase, major assets such as aircraft finance, and even entire factories in finance lease arrangements....
 payments. Note that this is different from operating profit
Earnings before interest and taxes

In financial and business accounting, earnings before interest and taxes is a measure of a firm's profitability that excludes interest and income tax expenses....
 (earnings before interest and taxes).

Net sales are calculated:

Net sales = Sales – Sales returns and allowances.


Gross profit is found by deducting the cost of goods sold
Cost of goods sold

In financial accounting, cost of goods sold or cost of sales includes the direct costs attributable to the production of the goods sold by a company....
:

Gross profit = Net sales – Cost of goods sold.


Gross profit should not be confused with net income:

Net income
Net income

Net income is equal to the income that a firm has after subtracting costs and expenses from the total revenue. Net income can be distributed among holders of common stock as a dividend or held by the firm as retained earnings....
 = Gross profit – Total operating expenses.


Cost of goods sold
Cost of goods sold

In financial accounting, cost of goods sold or cost of sales includes the direct costs attributable to the production of the goods sold by a company....
 is calculated differently for merchandising
Merchandising

Merchandising refers to the methods, practices and operations conducted to promote and sustain certain categories of commerce activity. The term is understood to have different specific meanings depending on the context....
 business than for a manufacturer
Manufacturing

Manufacturing is the use of machine, tool and labor to make things for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to Industry production, in which raw material are transformed into finished good on a large scale....
.

See also

  • EBITDA
  • Profit margin
    Profit margin

    Profit margin, net margin, net profit margin or net profit ratio all refer to a measure of profitability. It is calculated by finding the net profit as a percentage of the revenue....
    , the ratio of net income to net sales


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