Gross Profit Formula: Definition, Examples & Benchmarks
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Key terms
- BenchmarkA standard index or portfolio used to measure investment performance. Common benchmarks include the S&P 500 for large-cap stocks and the Bloomberg Aggregate Bond Index for bonds.
- Gross IncomeTotal income earned before taxes and deductions. For individuals, it includes wages, tips, investment income, and other earnings.
- Profit MarginA financial metric that measures what percentage of revenue a company keeps as profit after accounting for costs and expenses. There are several types of profit margin, including gross margin, operating margin, and net margin, each measuring profitability at different levels of the business. Higher profit margins generally indicate a more efficient and financially healthy business, though acceptable margins vary significantly by industry.
- Gross MarginThe percentage of revenue remaining after subtracting the direct costs of producing goods or services, known as cost of goods sold (COGS). Gross margin measures how efficiently a company produces its products and is calculated by dividing gross profit by total revenue. A higher gross margin means the company retains more money from each dollar of sales to cover operating expenses, debt, and profit.
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