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