| Definition |
Revenue minus the cost of goods sold (COGS); profit before operating expenses. |
Profit remaining after deducting all expenses including operating costs, interest, taxes, and other expenses from revenue. |
| Calculation |
Gross Profit = Revenue – Cost of Goods Sold (COGS). |
Net Profit = Gross Profit – Operating Expenses – Interest – Taxes – Other Expenses. |
| Indicates |
How efficiently a company produces or acquires its goods/services. |
Overall profitability and financial health after all costs. |
| Includes |
Only direct costs related to production or purchase of goods. |
All costs including direct costs, operating expenses, interest, taxes, and one-time expenses. |
| Used by |
Operations and production teams to assess production efficiency. |
Investors, management, and analysts to assess overall profitability. |
| Also Known As |
Gross Margin (sometimes expressed as a percentage of revenue). |
Bottom Line or Net Income. |
| Financial Statements |
Appears on the income statement before operating expenses. |
Reported at the bottom of the income statement. |
| Impact Factors |
Cost of materials, labor, and direct production costs. |
Operating expenses, interest payments, taxes, and non-operating items. |
| Profitability Insight |
Shows product/service profitability but not overall profit. |
Reflects true profitability after all expenses. |
| Importance |
Important for pricing and cost management decisions. |
Important for evaluating company’s financial success and dividend capacity. |
| Example |
Revenue $100,000 – COGS $60,000 = Gross Profit $40,000. |
Gross Profit $40,000 – Operating Expenses $25,000 – Taxes $5,000 = Net Profit $10,000. |
Gross Profit vs Net Profit