Gross Profit

Category

Income Statement

Units

Currency

Formula

Revenue − Cost of Revenue

US-GAAP elements

GrossProfit

Reference

Regulation S-X Rules 5-03.1 and 5-03.2 (Net sales and gross revenues; Costs and expenses applicable to sales and revenues)

Source

Reported in SEC EDGAR filings (US-GAAP XBRL taxonomy)

Gross profit is revenue minus the direct costs of producing the goods and services a company sold during a period. It shows how much a company earns from its core offering before paying for selling, administration, research, interest, and taxes.

Gross profit is the first profit subtotal on a multi-step income statement. Divided by revenue, it gives gross margin, the percentage of each sales dollar that remains after covering production and delivery costs.

Companies that present the subtotal tag it in XBRL as GrossProfit. Regulation S-X does not require a gross profit line. Rule 5-03 lists revenues under caption 1 and the directly related costs under caption 2, and the subtotal between them is optional. Many service companies, banks, and insurers do not report one at all. GeminIQ takes gross profit from the filing when it is reported and otherwise derives it as revenue minus cost of goods sold.

What sits in cost of revenue determines gross profit, and practice varies. Retailers may include occupancy and buying costs. Some companies include depreciation of production assets in cost of sales and some do not. SEC Staff Accounting Bulletin Topic 11.B discourages presenting a gross profit figure that leaves out depreciation that belongs in cost of sales. Software and internet companies often include hosting, support, and amortization of capitalized software, which makes their margins look lower than they would under a narrower definition.

Gross profit reflects pricing power and production efficiency. A company that can raise prices or lower unit costs as it grows will see gross profit rise faster than revenue. Because operating expenses are paid out of gross profit, a high gross margin gives a company more room to spend on growth and still earn an operating profit. Compare gross profit trends within a company over time, or among close peers with similar cost classification.