From the course: A Guide to Understanding Financial Statements

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Gross profit and gross margin

Gross profit and gross margin

From the course: A Guide to Understanding Financial Statements

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Gross profit and gross margin

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- [Instructor] Our first profitability metric in a profit and loss is what's known as gross profit. Gross profit represents the amounts that are left over from your revenue, after you subtract out the cost to deliver your product or service, or put another way, your gross profit can be seen as your revenue minus your cost of goods sold. Your gross profit, to me, is a very important metric, because it allows you to understand the maximum amount of income that you can earn after a sale and after subtracting out the cost to deliver that sale. So if you have a very low gross profit after each sale, well, you'll have a lot less money to either reinvest back into the business or to pay out to the owners of the business. If you have a negative gross profit, well, then you don't really have a business. The more sales you generate, the less you'll ultimately have in net income. You'll have a negative net income. You can find your gross profit right after the cost of goods sold section. You may…

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