What is Gross Profit?

Gross profit refers to the amount remaining from sales after subtracting the cost of goods sold (COGS). It represents the profit a company makes from its core business operations before accounting for administrative expenses, taxes, or other financial costs. By focusing only on the costs directly associated with the production of goods sold, gross profit provides a clear picture of how efficiently a business is producing and selling its products. This metric is essential for understanding the basic profitability of the business and making informed pricing and production decisions.

In contrast to gross profit, total sales revenue encompasses all income generated from sales without any deductions. Profit before expenses does not accurately account for the necessary costs incurred during production. Lastly, net income after taxes includes all types of expenses, making it a broader measurement of a company's profitability, which goes beyond just gross profit.