Gross Profit
Business: Cambridge International GCSE (2027 Exams), topic 5.5.1
Gross Profit
Gross profit is an important part in business calculations. Gross profit is equal to revenue minus cost of sales.
Gross profit
- Gross profit = revenue – cost of sales
- The higher a business’ gross profit is, the greater the difference between the price and the cost of sales.
- This is better for a business as they are making more profit excluding the business’ other costs.
Gross profit margin
- This is gross profit as a percentage of revenue:
- Gross Profit Margin (%) = (Gross Profit/Revenue) x 100
- It shows the average difference between the price that the company are able to charge customers and the costs directly associated with making and selling the product.
- Gross profit margin is a potential indicator of the efficiency of a company using its raw materials and labour during the production process.
Higher gross profit margin is better
- The higher the gross profit margin the better it is for the firm, as they are able to turn a higher portion of revenue into profit.
- It can be used to compare the profitability of products and to compare profits between different periods of time.