Key Points:
- Gross Profit = Net Sales less COGS
- The Gross Profit is the whole amount.
- GP Margin = Gross Profit / Net Sales * 100
- GP Margin is expressed as Percentage (%).
The very simplest topic we will discuss now. Though this is a very much easier issue, people are sometimes confused to understand it. So, let’s start discussing the issue.
What is Gross Profit?
Firstly, we will discuss Gross Profit. The gross profit will arise when you deduct the Cost of Goods Sold (COG) from your Net Sales. COGS just consists of all the direct costs of producing the goods and services for a particular firm. On the other hand, the net Sales = Gross Sales – Returns – Allowances. Hence, the Gross Profit is expressed in a whole amount.
What is GP Margin?
And, Now will discuss Gross Proft Margin. In the above discussion, you may get the way how the Gross Profit is calculated. The margin represents the percentage. Hence, GP Margin = Gross Profit/Net Sales * 100. So, when gross profit is expressed as a percentage is called Margin.
Example
For Example:
SALES = $ 50
COST OF SALES = $30
GROSS PROFIT (50-30) = $20.00
GROSS MARGIN [(50-30)/50] = 40%