Table of contents:
Video: Gross profit: formula and value
2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:47
The purpose of the functioning of any enterprise, regardless of its size or field of activity, is to make a profit. This indicator can be called one of the most important for analyzing the effectiveness of the organization. It allows you to determine how rationally its means of production and other resources are used - labor, money, material. In a general sense, profit can be viewed as the excess of revenue over costs and resources used for production. However, in the process of financial analysis, its various types are calculated. So, along with net profit, gross profit is determined. The formula for its calculation, as well as the value, differ from other types of income. At the same time, it plays one of the most important roles in assessing the effectiveness 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 discussed below, is a smaller value. It is formed after the payment of taxes (except income tax) and the deduction of labor costs. That is, not only material, but all total 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 income from non-operating transactions. It shows the efficiency of production as a whole. Let's see how gross profit is calculated. The formula looks like this:
sales income (net) - cost of goods/services sold.
Clarifications should be made here. Net income is calculated as follows:
total sales revenue - discount rate - value of returned item.
In general, we can say that this type of income reflects the income from the transaction without taking into account indirect costs.
Gross and Net Profit
Gross profit only includes direct costs. They are determined depending on the industry in which the company operates. So, for the producer, electricity that providesthe operation of the equipment will be a direct expense, and the lighting of the room will be overhead. When net profit is determined, indirect costs are also taken into account. For its calculation, gross profit can be used. The formula is:
gross profit - management, selling expenses - other expenses - taxes.
The income received after the payment of all these payments is net and can be used for various needs of the enterprise - social, related to the development of production, etc.
Conclusion
The most important indicator of production efficiency at 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 the provision of services. It is determined taking into account the direct costs of the organization and does not include indirect ones. Thus, this type of profit shows the efficiency of the use of resources directly involved in the main activities of the enterprise.
Recommended:
What is profit? Profit structure, its planning, distribution and use in market conditions
Not everyone understands correctly what constitutes profit. The profit structure is quite complex, so you need to understand its main features
Profit: definition. Profit and income: differences
To many people, the concepts of "income" and "profit" seem identical. However, it is not. Each of these categories has its own definition. Profit and income, as well as the difference between them, are discussed in the article
What is the difference between income and profit? What is the difference between income and profit, their features
At first glance, these are the same income concepts, meaning the receipt of funds, but income is not only revenue, and profit is less than income. Perhaps we should deal with these economic categories, understand their similarities and differences in order to speak the same language with economists
Net present value. Present Value
In modern economic terminology, it is quite common to find such a term as "net present value", meaning the estimated value that is used when comparing various investment options
A measure of value is The function of money as a measure of value
It's no secret that money, in fact, is in the process of circulation of goods a means of realizing their value. This means that the starting and at the same time the key function in the system of monetary relations is the function of the measure of value. What is it? What are its main features? Is this topic relevant today?
