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Gross Profit Formula:
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Gross profit calculation measures the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services. It represents the core profitability of a business before overhead expenses.
The calculator uses the gross profit formula:
Where:
Additional Calculation: Gross Profit Margin = (Gross Profit ÷ Revenue) × 100%
Explanation: Gross profit shows how efficiently a company uses labor and supplies in the production process. The margin percentage indicates what portion of each dollar of revenue is profit.
Details: Gross profit analysis is crucial for assessing business performance, pricing strategies, cost control effectiveness, and overall financial health. It helps identify trends and make informed business decisions.
Tips: Enter revenue and COGS in USD. Both values must be non-negative. The calculator will compute both gross profit amount and gross profit margin percentage.
Q1: What is the difference between gross profit and net profit?
A: Gross profit is revenue minus COGS, while net profit is gross profit minus all other expenses (operating expenses, taxes, interest, etc.).
Q2: What is considered a good gross profit margin?
A: This varies by industry, but generally margins above 20% are considered good, while margins above 40% are excellent. Service businesses typically have higher margins than manufacturing.
Q3: What expenses are included in COGS?
A: COGS includes direct costs: raw materials, direct labor, manufacturing overhead, and shipping costs directly tied to production.
Q4: How often should gross profit be calculated?
A: Most businesses calculate gross profit monthly as part of regular financial reporting, but it can be calculated for any period (weekly, quarterly, annually).
Q5: Can gross profit be negative?
A: Yes, if COGS exceeds revenue, gross profit becomes negative, indicating the business is selling products for less than their production cost.