Gross profit

Gross profit shows how much of the company's revenue remains after deducting the cost of goods sold or production costs. It is one of the most important figures in the financial statements because it provides an early indication of how effective the company is at making money from its goods or services – before fixed operating costs are included in the financial statements.

What is gross profit?

Gross profit is calculated as:

Net sales – cost of goods sold (trading companies)
Net sales – production costs (manufacturing companies)

This figure shows how much of the revenue the company retains after the direct costs of the goods or services sold have been paid. Gross profit does not include indirect costs such as:

administration
rent
depreciation
marketing
interest and tax

It is therefore a pure figure for earnings before operating costs.

Which companies use gross profit?

Gross profit is particularly relevant for companies with direct consumption of goods or production costs, including:

trading companies
manufacturing companies

Service companies often have limited direct consumption of goods and therefore typically use other key figures such as contribution margin and gross profit margin.

Example of gross profit

If a company has:
Net revenue: DKK 5,000,000
Cost of goods sold: DKK 2,000,000
Gross profit: DKK 3,000,000

This figure shows how much the company earns from sales before taking into account salaries, operating costs, and other fixed expenses.

Why is gross profit calculated?

The gross profit is used to:

assess the profitability of sales
identify changes in consumption of goods or production costs
spot inefficiencies in purchasing or production
compare periods, products, or departments
form the basis for key figures such as gross profit margin and gross margin

A company may have high turnover but low gross profit if purchase prices or production costs have risen.

Gross profit vs. contribution margin

Gross profit and contribution margin may be similar, but are not necessarily identical:

Gross profit is based on the cost of goods sold or production costs.
Contribution margin includes all variable costs – including, for example, freight, commissions, and packaging.

In companies with few variable costs, the figures will often be close to each other.

Gross profit in Qatchr

Gross profit is one of the figures you can see directly in a credit report in Qatchr, our credit platform. It provides a quick overview of the company's ability to generate earnings in its core business.

In Qatchr, gross profit is displayed alongside other key items such as: