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The amount of income that remains after subtracting the cost of goods sold (COGS) from the overall revenue a company generates is referred to as "gross profit" in financial accounting. It stands for the difference between the money a business makes from selling its goods or services and what it spent making or getting those goods or services.
A business first determines its sales revenue for a specific time frame, such as a quarter or a year, before calculating gross profit. The cost of the goods or services sold, which includes the price of labor, raw materials, and overhead costs paid in producing the goods or services, is then deducted from this amount. The resulting sum is the gross profit.
Gross profit is a crucial business indicator since it sheds light on a firm's operational effectiveness and profitability. It can be used to compare the effectiveness of various goods or services or to gauge the progress of a business. Also, gross profit is frequently used as a starting point when figuring out other financial indicators like operational profit and net profit.
