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Quick Definition

The amount of profit the company accumulated, minus the cost to produce and sell its products and services.

There's More to Financial Analysis Than You Think...

The Financial Analysis Success Kit can help!

Why you should take a look at the Financial Analysis Success Kit:

We've combined all our highly popular financial analysis tools into one mega-financial-analysis-kit that will save you hundreds of dollars if purchased separately. The kit contains 9 files packed with the most important financial ratio analysis tools you can find to help rocket your way to mastering financial analysis. The kit includes:

  1. The eBook "Learn Ratio Analysis In Minutes"

  2. The Learn Financial Ratio Analysis Excel Spreadsheet (2 versions!)

  3. A BONUS eBook..."Key Financial Statement Terms"

  4. Another HUGE BONUS...Five-Part Financial Ratio Cheat Sheet Series

The result? You get all these professionally created tools for a great low price.

Learn more on our product page:

Click the button to learn more about the Financial Analysis Success Kit

 

financial ratio analysis success kit

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Explanation of Gross Profit

Also called the Gross Margin and listed on the Income Statement, the Gross Profit is simply the Net Sales minus the Cost of Goods Sold. The Gross Profit figure represents how much of a difference there is in the sales income the company brings in, and the cost of producing those goods or services.

Importance of Gross Profit

If the Gross Profit is negative, this means the company uses more money to produce their goods or services than they can collect in sales. This is called operating “in the red” and the only good thing with a negative Gross Profit is if it is decreasing over time (getting closer to zero), and fast!

Few company’s can operate this way for an extended period of time without using their cash reserves or increasing their debt. Of course, if a company’s Gross Profit is positive and increasing over time, this is generally a good trend.