How to Calculate the Percentage of Gross Profit

Gross profit is the taxable income after finding the difference between assets and liabilities

In business, management must keep a close accounting tally of several financial levels: the cost of doing business, gross profit and net profit. Every business has property that is considered assets, and if these assets are added to, or their value increases, then the increase must be considered part of the business gross profit in a given period of time. Bank accounts are considered assets. Obligations that must be paid out of the business funds are liabilities. From these, the percentage that is gross profits can be deduced.

Things You'll Need

• Pen and paper
• Calculator
• List of assets
• List of liabilities

Instructions

1. Gather together all of your business records that show assets (checking accounts, savings accounts, real estate property) and liabilities (amount spent while conducting business, such as money spent on inventory and payroll, over the specified period, and all debts currently owed).

2. Add together the value of all assets and write this amount at the top of a sheet of paper, and then add together the amount of all liabilities and business operation costs and write this amount under the assets total. Subtract the liabilities from the assets, using a calculator if necessary. Write the final amount on the paper and label it "Gross Profit."

3. Divide the total amount of assets into the total amount of liabilities. If the assets are greater than liabilities, you will end up with a decimal amount. For example, if assets are $100,000 and liabilities are $25,000, the result of dividing the assets into the liabilities is .75. Move the decimal to the far right of the 5 and, instead of writing it, replace it with a percentage sign. This is the percentage money that is gross profit. This result is also called "Profit to Debt Ratio" by accountants, in that 75 percent of all money flow during the period ended up as gross profit while the amount of liabilities and debt are 25 percent of all money flow during the same period.

References

• Utah Association of Public Accountants: Business Ratios
• Handbook of Business Planning: Business Ratio Calculations (PDF)