How to Calculate Gross Profit

Gross Profit simply tells you how much money from sales you have left after all direct costs relating to those sales have been subtracted. If you have had your accounts done its very easy to work out what your companies gross profit was in that financial period by looking at the income statement, take the revenue/turnover figure and subtract the cost of goods sold, its as simple as that.

When an investor is analysing a business, gross profit is one of the most important figures because it is considered to be a good indicator of how efficient the business is in terms of how they use labor and supplies in the process of producing the goods or service, and in addition can be used to calculate gross profit percentage also known as gross profit margin. The Selling Price Calculator App which is now available in the App Store is also a gross profit calculator and a profit margin calculator, however calculating gross profit alone is a simple calculation as follows:

Gross profit = Net sales – Cost of goods sold.

The only issue in this calculation is ascertaining which costs to the business are direct costs to the production or provision of the goods or services, once this is done calculating gross profit is easy. Once you have this figures its time to work out your businesses gross profit margins which can be used to guide pricing and promotion decisions a business owner has to make.

Gross margin is usually expressed as a percentage, and is essentially the difference between the selling price and the cost of the goods/services provided. The calculation is as follows:

Gross margin percentage = (Turnover – Cost of goods sold) / Turnover

Unlike many other financial metrics the gross profit margin is a tool you can use to chart your company’s future rather than analysing whats gone before.

So now you know how to work out gross profit and gross profit margin. But with todays technology why do you need to know all this? why not let the Selling Price Calculator App handle the calculations simply and quickly for you. Buy it now for the iPhone in the App Store.

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