Gross profit, also known as gross profit (English is "Gross Profit") is the profit that a company earns after deducting costs related to the production and sale of products or other expenses. in connection with the provision of services by the company. Let's find out with Giaiphapdonggoi.net what gross profit is!
1. What is gross profit?
What is gross profit?
A company's gross profit is the company's total sales minus its total cost of goods sold. Total revenue is all the goods the company has sold. Total cost of goods sold is the sum of all variable costs associated with the sale of goods.
Gross profit is used to measure how efficiently a company uses labor and materials to produce goods or services. This metric mainly looks at variable costs which are costs that fluctuate with the level of output, such as:
Material.
Direct labor, say hourly or otherwise, depends on the level of output.
Commissions for sales staff.
Credit card fees when customers make purchases.
Equipment includes usage-based depreciation.
Utilities for the production site.
Shipping in progress.
While calculating total sales, include all goods sold during a financial period, but exclude sales of fixed assets such as buildings or equipment.
Gross profit serves as a financial metric used to determine the gross profit of a business. It shows how well sales cover the direct costs associated with producing the good.
2. Formula for calculating gross profit
Formula to calculate gross profit
The formula for gross profit is:
Gross profit = Sales revenue - Cost of goods sold
Where revenue represents the total amount earned from the sale of a product, and cost of goods sold represents the variable direct costs of producing the product - costs such as materials, equipment, employee labor and transportation. When calculating gross profit, some businesses may substitute net sales for total sales. Net sales is similar to gross sales, except it subtracts the price of returned or returned merchandise, allowances, and discounts.
As defined, gross profit excludes fixed costs (i.e. costs incurred regardless of output level). Fixed costs include rent, advertising, insurance, wages for non-manufacturing employees, and office supplies.
To demonstrate:
As of the first quarter of the current year's business, a bicycle company has sold 200 units, with total sales of $60,000. However, it incurred $25,000 in costs, for parts and materials, along with direct labor costs. There are also profits and allowances totaling $1,000. As a result, the gross profit declared in the financial statements for Q1 was $34,000 ($60,000 - $1,000 - $25,000).
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3. Gross profit margin
Gross profit margin
Gross profit margin also known as gross profit margin - is the percentage of a company's sales that is greater than its cost of goods sold (COGS). This ratio represents how effectively a business generates revenue relative to managing their production costs.
A business aims to have as high a gross profit margin as possible. If a high gross profit margin indicates a business is making more profit from selling products and has more cash flow to pay indirect operating costs, hire more workers, pay off debt, or invest in growth for the future.
Here is the formula for calculating gross profit margin:
Gross profit margin = Total profit / Total revenue x 100
Gross profit margin is expressed as a percentage. For example, a company has sales of $500 million and COGS of $400 million; so their gross profit is $100 million. To get a gross margin, divide $100 million by $500 million, resulting in 20%.
4. Difference between gross profit vs gross profit margin
Difference between gross profit vs gross profit margin
Gross profit as well as gross margin both measure a company's profitability using sales and cost of goods sold (COGS), but one key difference is that gross profit is a fixed dollar amount, whereas gross margin is a percentage. The fact that gross profit margin is a percentage makes it a useful metric for business owners to compare their profit margins with industry standards or competitors.
p because both gross margin percentages are expressed relative to each company's revenue size and cost of goods sold.
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Example: If you're starting a small and new business, it doesn't make sense to compare your total profits with that of a large established competitor with more than millions of dollars in revenue. la. Instead, you can compare the gross profit margin of your business
