Investment Formula Description
Gross profit or sales profit is the total earning that a business made after deducting costs directly used to generate this earnings.
Those costs are direct materials cost and direct labor costs. On the other words, gross profit or sales profit is the remaining revenue after deducting cost of goods sold (COGS) before deducting overhead, payroll, taxation and interest expense. Note that gross profit and sales profit is not same with operating profit ( earning before interest and taxation ) because gross profit or sales profit is only deduct cost of good sold ( COGS ) from revenue but operating profit deduct operating expense ( including COGS and overhead ) as a whole from operating revenue. Gross profit is used in gross profit margin investment formula to calculate gross profit margin for a corporation.
Investment Formula Example
Corporation A has $20,000 revenue with $10,000 of cost of goods sold ( COGS ) and $ 2,000 for overhead such as taxes, rentals and salaries. The Gross profit calculations are as following.
Gross Profit = Revenue - Cost of Goods Sold ( COGS ) = 20,000 - 10,000 = $10,000
Unlike net profit, overhead such as taxes, rentals, salaries is not deducted from revenue for Gross Profit.