Gross profit: formula and value

The purpose of the operation of any enterprise, regardless of its size or scope of activity, is to obtain profit. This indicator can be called one of the most important for the analysis of the effectiveness of the organization. It allows us to determine how rationally its means of production and other resources are used-labor, money, and material. In general, profits can be viewed as excess of revenue over costs and inputs used for production. However, in the process of financial analysis, its various types are calculated. So, along with net profit is determined gross. The formula for calculating it, as well as the value, are different from other types of income. At the same time, it plays one of the most important roles in assessing the efficiency of the enterprise.

The concept of gross profit

The term comes from the English gross profit and means the total profit of the organization for a certain period. It is defined as the difference between the income received from sales and the cost of production. Some confuse it with gross income. The first is formed as the difference between the proceeds from the sale of goods and the costs associated with their production. In other words, it is the sum of net income and wages of employees. The gross profit of the enterprise, the formula of which will be considered below, is a smaller quantity. It is formed after the payment of taxes (except for income tax) and deduction of labor costs. That is, not only material, but all cumulative costs associated with production are taken into account.

Formula: gross profit

This value is formed as a result of the sale of all types of products and services, and also includes revenues from non-operating transactions. It shows the efficiency of production as a whole. Let's see how the gross profit is calculated. The formula has the following form:

Income from sales (net) - cost of goods sold / services.

Here it is necessary to introduce clarifications. Net income is calculated as follows:

Total sales revenue - the amount of discounts - the value of the returned goods.

In general, we can say that this type of profit reflects the income of the transaction without taking into account the indirect costs.

Gross and net profit

The gross profit takes into account only direct costs . They are determined depending on the industry in which the enterprise operates. So, for the manufacturer, the electric power providing the operation of the equipment will be a direct expense, and the lighting of the premises is invoiced. When net profit is determined, indirect costs are taken into account. For its calculation, gross profit can be used. The formula has the form:

Gross profit - management, commercial expenses - other costs - taxes.

The income received after payment of all these payments is pure and can be used for various needs of the enterprise - social, connected with the development of production, etc.

Conclusion

The most important indicator of the efficiency of production in the enterprise is gross profit. The formula for its calculation is given in the article and reflects the total revenue received from the sale of goods or services. It is determined taking into account the direct costs of the organization and does not include indirect costs. Thus, this type of profit shows the efficiency of using resources directly involved in the core business of the enterprise.