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Gross Profit: Definition and Meaning
Definition
Gross profit is revenue minus the direct cost of goods sold or cost of sales.
Why It Matters
Gross profit measures the amount available to cover overhead, interest, taxes, owner distributions, and other costs after direct production or project costs have been considered. It is a key measure in analyzing operational performance.
A business may generate strong revenue but have weak gross profit if direct costs are too high, estimates are inaccurate, pricing is insufficient, or project performance is poor.
Example
A business has $200,000 in revenue and $120,000 in cost of sales. Its gross profit is $80,000.
Related Terms
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