Gross profit (Gross Profit) is an important metric and should always be included in the business report. So what is gross profit? What are the characteristics and formula for calculating gross profit?

Let’s find out with lamchutaichinh through the content of this article!

What is Gross Profit?

Gross profit is understood as the profit that a company earns after deducting costs related to the production and sale of products, or costs related to providing services. of the company.

What is Gross Profit?
What is Gross Profit?

To be able to evaluate the efficiency of the company in the process of business operations, labor management, and production, gross profit is used.

Features of gross profit

Gross profit metrics only consider variable costs, meaning costs that fluctuate with output levels, such as:

  • Materials
  • Direct labor
  • Commissions for sales staff
  • Credit card fees for customer purchases
  • Equipment
  • Transport fee

Formula to calculate gross profit (Gross Profit)

The formula for calculating gross profit is as follows:

Gross profit = Net sales – Cost of goods sold

Net revenue is calculated by the formula:

Net revenue = Total revenue – Cost deductions

In there:

  • Cost of goods sold is the total cost that a business spends to produce goods, including: raw materials, warehouse, marketing, business management, human resources, transportation, etc.
  • Net revenue is the total revenue a business earns from selling products or providing services.
  • Sales deductions will include: export tax, value added tax, excise tax and discounts, rebates, returns.

What is Gross Profit Margin?

Define

Gross Profit Margin is an metric used to gauge a company’s business model and financial health by revealing the amount left over from sales after deducting the cost of goods sold. sell.

Calculation formula

Gross profit margin (%) = Gross profit / Total revenue

Example of how to calculate Gross Profit

Enterprise A collects VND 5,000,000,000 from sales. Assume that the cost of goods includes VND 2,000,000,000 for production materials and VND 500,000,000 for labor costs.

The gross profit of Enterprise A in this case is 5,000,000,000 – (2,000,000,000 + 500,000,000) = 2,500,000,000 VND

It can be said that, after deducting cost of goods sold, the company boasts a gross profit of VND2,500,000,000

What is the difference between gross profit and net income?

While gross profit refers to subtracting variable costs, or cost of goods sold, from sales, net income subtracts interest expenses and taxes from a company’s income. Net income is sometimes referred to as the “bottom line” because it is on the bottom line of a company’s earnings table. It is often used to measure the profitability of a company.

The meaning of calculating gross profit in business activities

Gross profit is a factor, an extremely important indicator in considering the business performance of the Enterprise. However, not every company or individual business can accurately calculate gross profit.

With accurate gross profit metrics in hand, you can measure the efficiency of your workflow. Control what costs are reasonable, what costs need to be cut to get more profit.

For companies looking to scale their business, gross profit is the first metric that investors look at. From these numbers, they will know if the company is really managing sales effectively or not. If this index can be controlled, the percentage of investors pouring capital into the business will be higher.

Gross profit helps businesses evaluate the efficiency when using labor or production materials, helps calculate everything correctly, and increases the success rate for sellers. You will need to track costs that vary with output levels, such as:

  • Depreciation of production machinery and equipment
  • Factory utensil
  • Shipping fee
  • Cost of raw materials
  • Labor costs, both formal and part-time.
  • Commissions for sales staff
  • Credit card fees for customer purchases

Conclude

What is Gross Profit? What is the calculation formula and meaning? All have been answered through the content of this article. Hope to have brought you useful information.

Information edited by: lamchutaichinh.vn


 


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