Gross profit

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In accounting, gross profit, gross margin, sales profit, or credit sales is the difference between revenue and the cost of making a product or providing a service, before deducting overheads, payroll, taxation, and interest payments. This is different from operating profit (earnings before interest and taxes). Gross margin is the term normally used in the U.S.,^[1] while gross profit is the more common usage in the UK and Australia.

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] × 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

• Cost of goods sold (CS)
• Earnings before interest, taxes, depreciation and amortization (EBITDA)
• Profit margin (the ratio of net income to net sales)
• Gross margin (the difference between the sales and the production costs)
• Selling, general and administrative expenses (SG&A)
• Net income
• Income statement

References