The purpose of the functioning of any enterprise, regardless of its size or field of activity, is to make a profit. This indicator can be called one of the most important for the analysis of the effectiveness of the organization. It allows you to determine how rationally its means of production and other resources are used - labor, monetary, material. In a general sense, one can consider profit as an excess of revenue over costs and resources used for production. However, in the process of financial analysis, its various types are calculated. So, along with net gross profit is determined . The formula for its calculation, as well as the value, differs from other varieties of income. Moreover, it plays one of the most important roles in assessing the performance of an enterprise.
The concept of gross profit
The term comes from the English gross profit and means the total profit of the organization for a certain period. It is defined as the difference between the income from sales and the cost of production. Some confuse it with gross income. The first is formed as the difference between the proceeds from the sale of goods and the costs associated with their production. In other words, it represents the sum of the net income and wages of workers. The gross profit of the enterprise, the formula of which will be considered below, is a smaller value. It is formed after tax (except for income tax) and deduction of labor costs. That is, not only material, but all the total costs associated with production are taken into account.
Formula: Gross Profit
This value is formed as a result of the sale of all types of products and services, and also includes income from non-operating operations. It shows the overall production efficiency. Let's see how gross profit is calculated. The formula is as follows:
sales income (net) - the cost of goods / services sold.
Clarifications should be made here. Net income is calculated as follows:
total sales revenue - discounts - value of returned goods.
In general, we can say that this type of profit reflects the income from the transaction without taking into account indirect costs.
Gross and net income
Gross profit includes only direct costs . They are determined depending on the industry in which the company operates. So, for the manufacturer, the electricity that ensures the operation of the equipment will be a direct expense, and the lighting of the room will be overhead. When net profit is determined, indirect costs are also taken into account. For its calculation gross profit can be used. The formula is:
gross profit - administrative, selling expenses - other expenses - taxes.
The income received after payment of all these payments is net and can be used for various needs of the enterprise - social, associated with the development of production, etc.
Conclusion
The most important indicator of production efficiency at the enterprise is gross profit. The formula for its calculation is given in the article and reflects the total revenue received from the sale of goods or the provision of services. It is determined taking into account the direct costs of the organization and does not include indirect costs. Thus, this type of profit shows the efficiency of the use of resources directly involved in the main activities of the enterprise.