Gross profit is the difference between a company's total revenue and the cost of goods sold (COGS). In other words, it is the profit a company earns from selling its products or services, after deducting the direct costs associated with producing and delivering them.
To calculate gross profit, you subtract the cost of goods sold (which includes direct costs such as materials, labor, and overhead) from total revenue. The resulting figure represents the amount of money that is available to cover other operating expenses and generate net income.
Gross profit is an important financial metric as it provides insight into a company's operational efficiency and pricing strategy. A high gross profit margin indicates that a company is generating a significant amount of revenue from each sale and is able to cover its direct costs effectively. A low gross profit margin, on the other hand, may indicate that a company is facing pricing pressure or struggling to control its production costs.
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