Gross Profit

Indicator Description

Gross Profit varies significantly from one sector to another and tells an investor how much money a business would have made if it didn't have to pay any overhead expenses such as salary, taxes, or rent.

Gross Profit 
 = 
Revenue 
-  
Cost of Revenue 

Gross Profit is the most basic measure of business operational efficiency. It is simply the difference between sales revenue and the cost associated with making a product or providing a service. It is calculated before deducting administrative expenses, taxes, and interest payments.

Gross Profit In A Nutshell

Profit margin is a number that you can use along with gross profit, but understanding what drives the numbers is key. Obviously there is sales and the ability of the company to make money. If you see that sales and revenue have been slipping, then the gross profit number will likely be slipping as well.

Gross profit is an important number to look at when fundamentally evaluating a stock. Gross profit is simply total revenue with the cost of goods sold subtracted. A company needs to maintain these types of numbers as it is what appeals to investors. Fundamentally understanding a stock is fairly simple, but it is what you are looking for that is important.

Closer Look at Gross Profit

Gross profit margin can also be solved with the gross profit, which is expressed in the term of percentage. Be sure to take the time to figure out what fits your investing style because some numbers may be of greater importance than others. For example, value investors are looking at debt and cash flow more than anything because they want the company to be able to withstand slow downs with confidence.

In todays current market, we can use the example of retail and where you may find that gross profit is struggling. Take the time to figure out why it is this way and apply it to other areas of the market. Learning more than once area of the market will help you become a well rounded fundamental researcher.

If you are not already, find a piece of material to read on a regular basis that uses gross profit and other fundamental numbers, that way you can become comfortable with the way people use them in their research. Consult with an investing community and interact with the people as many of them may have multiple years experience. If all else fails, reach out to an investing professional and they should be able to point you in the right direction. Gross profit is an excellent tool and should be once that you keep handy in your investing toolbox.

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