Gross profit is a line item found on the income statement which is obtained after subtracting the cost of goods sold and other sales returns from the sales revenue. The formula for calculating the gross profit is as follows: Gross Profit = Sales Revenue - Cost of Goods Sold Where: Sales revenue is the amount of money obtained from selling goods or services to customers, and can be realized as either cash or credit sales. Cost of goods sold is the direct cost incurred when producing goods, including raw materials cost, direct labor cost, and manufacturing cost.
Gross MarginCompanies can calculate the gross margin using the GP amount and total sales revenue figures, as shown in the following formula: Gross Margin = Gross Profit / Total Revenue x 100% The gross margin is a profitability ratio used to determine how well sales revenue cover the direct costs required to produce goods or services of the company. For example, if the gross margin is 60% it means that 40% of the sales are used to cover the COGS or other direct costs.
Using This Excel TemplateThis Excel template contains an income statement with hard-coded five-year financial data in blue font. The gross profit and gross margin lines are formulas driven by the revenue and COGS inputs. To calculate the GP and margin, simply enter all the actual data on this Excel spreadsheet. The results will then be calculated for you. This is a simple and easy-to-use template designed to help anyone perform financial analysis at ease!
Learn More About Gross ProfitRead CFI's guide to have a better understanding of the definition, uses, and examples!
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