Gross Profit is the difference between total revenue and the cost of goods sold, showing how efficiently a business produces and sells its products.
How It Works:
- Total revenue from sales is calculated.
- Cost of goods sold is determined.
- Gross profit is calculated by subtracting cost from revenue.
- The result indicates basic profitability before expenses.
Benefits:
- Helps measure operational efficiency
- Indicates pricing effectiveness
- Supports financial analysis
- Aids in decision making
Example:
A business earns ₹10,00,000 in revenue and spends ₹6,00,000 on production, resulting in a gross profit of ₹4,00,000.