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Edlintics

Gross profit

Gross profit is revenue minus cost of goods sold, representing the first profitability subtotal on the income statement before any operating expenses are deducted.

Also known asgross margin

ByHoang TruongUpdated

See it move

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A split bar shows total revenue of €120,000 divided into two stacked segments: cost of goods sold at €72,000 and gross profit at €48,000. Dividing gross profit by revenue gives a gross margin of 40%, noted beneath the bar. Gross profit is the first subtotal on the income statement and measures how much revenue remains after production costs, before operating expenses, interest, and tax are deducted.

Where it fits
SubjectFinancial AccountingCoreTopicRevenue, Expenses & ProfitCore

The formula

LaTeX
Gross Profit=Revenue−Cost of Goods Sold\text{Gross Profit} = \text{Revenue} - \text{Cost of Goods Sold}

Variables

Total sales revenue earned in the period (€)
Cost assigned to inventory units sold in the period (€)
LaTeX
Gross Profit Margin=Gross ProfitRevenue\text{Gross Profit Margin} = \frac{\text{Gross Profit}}{\text{Revenue}}

Variables

Proportion of each euro of revenue retained after direct production costs (%)

Multiply by 100 to express as a percentage.

Check yourself

PracticeCORE

A retailer reports the following for the period: sales revenue €340,000; cost of goods sold €190,000; selling expenses €35,000; administrative expenses €28,000. What is the gross profit?

Select an answer to check your understanding.