Fundamental Glossary / Profitability Metrics
Gross Profit
Revenue minus the direct cost of producing the goods or services sold.
Formula
Revenue - cost of goods sold.
What it means
Gross profit is what is left to pay salaries that are not in the factory cost, rent, marketing, interest, and tax, and still leave a net profit. It is the first measure of pricing power.
What sits in cost of goods sold varies. A manufacturer includes materials and plant labour. A retailer includes the cost of merchandise. A services firm may have a thin or undefined gross profit.
How to read it
A widening gross margin means the company is charging more, paying less for inputs, or selling a richer mix. A narrowing margin is the earliest warning that competition or costs are winning.
What to watch
Accounting choices move the line. Capitalising costs, changing inventory method, or netting discounts against sales all change gross profit. Compare the notes, not just the percentage.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.