Gross profit is the total revenues earned by a business less the cost of goods sold and it helps tell a lot of things:
- Performance metric: it is an important measure of a company’s financial performance and indicates whether the overall operations are generating profits or losses.
- Calculates cash flow: Gross profit is also used to calculate operating income, which represents the amount of money available to cover operating expenses, taxes, and other costs incurred during a given period.
- Product demand: Gross profit also reflects how efficiently a company produces and sells its products.
- Resource management: Gross profit margin is calculated by dividing gross profit by total revenue, which helps provide insight into how well the company manages its resources and leverages its output in order to generate maximum returns.