Is there a difference when we use terms like gross profit, gross margin, gross profit %. gross profit margin or gross profit rate?

Answer:

It is interesting to note that some of us still use the above terms interchangeably.

However, take note that:

Gross Profit is an ABSOLUTE term which is simply:

[ Gross Profit = Revenue minus Cost of Goods Sold ]

Whereas

Gross Margin or also known as Gross Profit Margin, Gross Profit % and Gross Profit Rate is a financial ratio used to assess the profitability of a firm’s core activities, excluding fixed costs usually in the form of percentage.

The calculation is Gross profit / sales revenue x 100.

Other Salient point:

· In earlier article, gross profit margin indicates the relationship between net sales revenue and the cost of goods sold. A business which can generate a high gross profit margin means that it has more chances of making a reasonable net profit on sales, as long as it keeps overhead costs in control.

[ also check out another article on what’s in the Income Statement ]