Definition of Gross Profit
Gross profit is sometimes referred to as gross margin. (However, gross margin can also mean the gross profit expressed as a percentage of net sales.)
Gross profit is presented on a multiple-step income statement prior to deducting selling, general and administrative expenses and prior to nonoperating revenues, nonoperating expenses, gains and losses.
Example of Gross Profit
Let's assume that a manufacturer has net sales of $60,000 and its cost of goods sold (using absorption costing) is $39,000. Therefore, the manufacturer's gross profit is $21,000 ($60,000 minus $39,000). The gross profit ratio or gross profit percentage is 35% (gross profit of $21,000 divided by net sales of $60,000).