What is the correct definition of gross profit?

What is the correct definition of gross profit?

• A. Total revenue minus total expenses
• B. Total revenue minus cost of goods sold
• C. Net profit minus operating expenses
• D. Sales revenue minus trade payables

Answer: (B)

Gross profit specifically refers to the income a company makes from its core business activities, calculated as total revenue minus the cost of goods sold (COGS). This figure only considers the direct costs attributable to the production of the goods sold, such as materials and labor, providing a clear view of the profitability from the core aspects of the business. Understanding gross profit is essential as it helps businesses gauge how efficiently they are producing their products and managing their direct costs. It does not take into account other operating expenses such as sales and marketing, which are considered in calculating net profit. This makes it a vital statistic for assessing the health of a company's production operations while highlighting its margin on goods sold. Other options do not define gross profit correctly. Total revenue minus total expenses encompasses all costs, including operational and non-operational, which is not specific to gross profit. Net profit minus operating expenses refers to a different measure that relates to overall profitability after all costs are accounted for. Lastly, sales revenue minus trade payables involves liabilities rather than direct costs of goods sold, making it an unrelated calculation.

Gross profit specifically refers to the income a company makes from its core business activities, calculated as total revenue minus the cost of goods sold (COGS). This figure only considers the direct costs attributable to the production of the goods sold, such as materials and labor, providing a clear view of the profitability from the core aspects of the business.

Understanding gross profit is essential as it helps businesses gauge how efficiently they are producing their products and managing their direct costs. It does not take into account other operating expenses such as sales and marketing, which are considered in calculating net profit. This makes it a vital statistic for assessing the health of a company's production operations while highlighting its margin on goods sold.

Other options do not define gross profit correctly. Total revenue minus total expenses encompasses all costs, including operational and non-operational, which is not specific to gross profit. Net profit minus operating expenses refers to a different measure that relates to overall profitability after all costs are accounted for. Lastly, sales revenue minus trade payables involves liabilities rather than direct costs of goods sold, making it an unrelated calculation.