In the business reports of the company, it is certainly not possible to ignore the gross profit part. So what is gross profit? How is this profit calculated? All will be answered in the article below.
Viewing: What is Gross Profit?
Gross profit is a specialized term in the economic-financial field, anyone working in this industry needs to know the important role and how to calculate this profit correctly. Therefore, if you are interested in this issue, do not leave out the information in this article.
What is gross profit?
Gross profit, also known as gross profit in English, is understood as the profit that a business generates after deducting all costs related to creating and selling its products. Or you can consider this as an expense related to providing your services. Thus, gross profit is the sales profit and total income of that company’s products and services.
What is gross profit?
If understood in another simple way, it can be said that gross profit is also the profit earned after taking net sales minus the cost of goods sold of a certain company or business. Gross profit will appear on the income statement of the company and the business.
Gross Profit Margin is an metric used to gauge a company’s business model and financial health by revealing the amount left over from sales after cost of goods sold has been deducted.
How to calculate gross profit
Gross profit will appear on a company’s income statements and is usually calculated by subtracting the cost of goods sold from sales. These figures can be found on the income statements of each company or business.
The way to determine gross profit according to the standard formula is as follows:
Gross profit = Sales revenue – Cost of goods sold
For example: You produce a wooden chair and sell it on the market for 200 thousand. In which the cost of buying materials such as wood, paint, nails, etc. is 50 thousand so the gross profit here of that wooden chair product will be 200 thousand – 50 thousand.
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The most accurate way to calculate gross profit
Gross profit always appears on a company’s income statements. Looking at this parameter, one can see the business situation as well as the financial capacity of that unit or enterprise.
Gross profit margin coefficient is considered to represent gross profit, so it is also called gross profit coefficient or also profit ratio. The formula to calculate the specific gross profit margin coefficient is as follows:
Gross profit margin (%) = Gross profit / Sales
With this coefficient, it is possible to tell the reader how much revenue each dollar of revenue generates for the company. Gross profit margin coefficient is considered a very useful indicator when comparing the financial capabilities of enterprises in the same activity, industry or field.
Gross profit helps companies adjust their business model accordingly
The company or businesses with a higher gross profit margin, it proves that the business is more profitable and has the ability to control costs more effectively. As a result, companies will come up with appropriate business strategies to develop and compete with their competitors better.
Difference between gross profit and profit before tax
?Earnings before tax (EBIT) is a specific metric used to measure the profits that businesses or investors make ahead of time. interest payment points and tax expenses (if any). Therefore, profit before tax usually appears on the statements of trading income and profit or loss.
Difference between gross profit and profit before tax?
EBIT is obtained by deducting expenses from sales to produce a result that is gross profit. From the above income, deduct the expenses and finally get the income before interest and taxes. As for gross profit is just the value of goods sold minus product costs.
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Above is information about what gross profit is and the issues related to this type of profit. If you think this is a good article that you want more people to refer to, don’t forget to hit the Like and Share buttons.