Gross Profit vs Net Profit
The distinction between profit after deducting cost of goods sold (gross) and profit remaining after all expenses including operating costs and taxes (net).
Gross Profit vs Net Profit
The distinction between two key profit measures: gross profit (revenue minus cost of goods sold) and net profit (revenue minus all expenses, including operating expenses, interest, and taxes).
For example, a manufacturer might report quarterly revenue of $5 million, cost of goods sold of $3 million, operating expenses of $1.5 million, and taxes of $125,000, resulting in gross profit of $2 million (40% margin) and net profit of $375,000 (7.5% margin).
Gross profit focuses on production and purchasing efficiency, showing how much revenue remains to cover operating expenses and generate profit. Net profit represents the true bottom line, indicating what remains for owners after all expenses. The gap between these metrics reveals the impact of operating expenses, interest, and taxes on overall profitability, with wider gaps often seen in companies with high overhead or administrative costs.