---
title: What is Gross Profit| Botkeeper
description: Reveals the amount that a business earns from the sale of its goods and services before the application of additional selling and administrative expenses.
---

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# **Gross Profit**

 

## **Gross Profit**

Reveals the amount that a business earns from the sale of its goods and services before the application of additional selling and administrative expenses. Gross profit is typically stated partway down the income statement, prior to a listing of selling, general, and administrative expenses. It is that reflects total revenue from sales of inventory or services, less Cost of Goods Sold (COGS).

## **Why is Gross Profit important?**

 A factor to consider when analyzing the profitability and financial performance of n organization. Gross profit is an important measure because it indicates the efficiency of the management in using labor and supplies in the production process.

Gross profit is affected by many factors. A company can have a high or low gross profit for example because:

It has differentiated its products and therefore can charge high prices.

It is being managed efficiently, therefore, it has a low cost of sales.

Its accounting policies move expenses from cost of sales to overheads (or vice versa).

It is vertically integrated and can purchase raw material at lower costs

#### Also see these related terms:

**

#### [Accounts Receiveable](https://www.botkeeper.com/accounts-receivable)

 

**

#### [Accounts Payable](https://www.botkeeper.com/accounts-payable)

 

**

#### [Accrual Based Accounting](https://www.botkeeper.com/accrual-accounting)

 

 

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