The financial accounting term gross profit is used to describe a subtotal line item appearing on the income statement. Gross profit is the money left over after the cost of goods sold (COGS) is subtracted from revenues.
Gross Profit = Revenues – Cost of Goods Sold
Also known as gross margin, gross profit is a measure of a company’s ability to earn money from ongoing operations. It’s a value that is frequently used to measure the efficiency of a company. For example, gross profit is a key variable used in the gross profit margin calculation.
Gross profit removes the cost of goods sold from revenues. As such, the value tells the analyst or investor how much money is left over after the cost to make the product or supply the service is removed. Expenses such as direct labor and raw materials are included in the cost of goods sold.
Company A’s income statement indicates total revenues of $29,611,000 and cost of revenues (another name for COGS) of $15,693,000. The gross margin for Company A would then be:
= $29,611,000 – $15,693,000, or $13,918,000