What Are Net Profit & Gross Profit?
Gross profit and net profit are calculations used by businesses to measure the total money earned. Gross profit, unlike net profit, measures only direct profit margin of a product, whereas net profit is the actual bottom line--the amount made after expenses, overhead, interest, taxes, depreciation and amortization.
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Gross Profit
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In the simplest form, gross profit, or GP, is measured as revenue minus cost of goods. This is often referred to as profit margin. Businesses typically attempt to maintain certain thresholds on the profit margin to budget expenses. Gross profit can vary from industry to industry. Some industries might profit only pennies on the dollar, and in others the gross profit might be the same as the revenue.
Revenue
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Revenue is simply the income received in sales or business transactions from merchandise or services. Revenue is calculated by multiplying the retail price by the number of units sold, at least when dealing with merchandise, according to Investopedia. When performing services, it is simply the cost of labor or service.
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Cost of Goods
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The cost of goods sold is simply the actual cost incurred to sell and/or ship a product. For instance: If a used-car dealership purchases a trade-in for $5,000 and performs $1,000 in maintenance on it, the cost of goods is $6,000 upon resale. That's the amount the dealership has spent to sell the vehicle.
Operating Profit
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Operating profit is another form of profit often calculated. Operating profit is gross profit minus expenses from overhead, labor, production, maintenance, supplies and equipment. It's simply revenue minus expenses.
Net Profit
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Net profit is also referred to as net income. It is considered the "bottom line" in business--an expression originating from the bottom line of an income statement, showing a company's total profit. Net income is a company's total earnings, calculated as the operating profit minus taxes, interest, depreciation and amortization.
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References
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