Gross profit is the total revenue of a company after deducting the Cost of Goods Sold. It represents the profit earned by the company after excluding all the direct costs of producing the goods. It is one of the metrics used by analysts to measure a company’s profitability.

The formula:

Gross profit formula

Gross profit, also known as gross income, is used to determine a company’s efficiency to produce goods or services by utilizing its labor and resources.  Gross profits consider only variable costs of a company and exclude fixed costs.

To measure a company’s efficiency over time, the Gross Profit Margin is calculated using Gross Profit. Although both these terms are used interchangeably, comparing gross profits of different years causes inaccuracies. Therefore, the gross profit margin is used for accurately comparing production efficiency.

The Formula:

gross profit margin formula