Gross profit
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In accounting, gross profit or sales profit or gross margin is the difference between revenue and the cost of making a product or providing a service, before deducting overhead, payroll, taxation, and interest payments. Note that this is different from operating profit (earnings before interest and taxes). Note also that gross margin is the term normally used in the U.S. [1] [2], while gross profit is the more common usage in the U.K.
The various deductions (and their corresponding metrics) leading from Net sales to Net income are as follows:
- Net sales = Gross sales – (Customer Discounts, Returns, Allowances)
- Gross profit = Net sales – Cost of goods sold
- Gross profit percentage = {(Net sales – Cost of goods sold)/Net sales} x 100
- Operating Profit = Gross Profit – Total operating expenses
- Net income (or Net profit) = Operating Profit – taxes – interest
(Note: cost of goods sold is calculated differently for a merchandising business than for a manufacturer.)
See also
- COGS (Cost of Goods Sold)
- EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation)
- Profit margin (the ratio of net income to net sales)
- Gross margin (the difference between the sales and the production costs)
- SG&A (Selling, General and Administrative expenses)
- Net income
- Income statement
References
- ^ Horngren, Charles (2011). Accounting, 9th Edition. Upper Saddle River, New Jersey 07458: Prentice Hall. ISBN 0132569051.
{{cite book}}: CS1 maint: location (link) - ^ "Gross Margin". Investopedia.