Gross Profit - Definition

Gross Profit: Gross Profit is basically the revenue earned during a period of time say one year minus the cost of goods sold. Cost of goods involves the cost incurred for bringing the goods at saleable condition. Gross profit can also be referred as Gross margin or Gross Income.

Implication: Gross profit helps you to analyse the amount spent by the company to earn revenue. In other words it also helps you to  Gross profit should always be compared for companies within the same industry. Cross industry company comparison would not give much insights.

Example: Company A and Company B(of the same industry) both have $10 million in sales. Company A's cost of goods sold (COGS) is $8 million and Company B's COGS is $9 million. Company A's gross profit will be $2 million and Company B's gross profit will be $1 million. Company A spends less money to make the same amount of sales, and is therefore more efficient.