Gross profit
In one sentenceNet sales minus cost of goods sold; the first profit in the income statement, showing what is left to cover operating expenses.
Simply put
Gross profit measures the difference between the selling price and the cost of what you sold, before salaries, rent and the like. If it is small, the problem is usually in pricing or purchasing, not in administrative expenses.
You divide it by sales to get the gross profit margin, a percentage you use to compare yourself from one year to the next.
Worked example
An auto parts store sold 800,000 SAR during the year, and the cost of the parts sold was 560,000 SAR.
Net sales800,000
− Cost of goods sold(560,000)
Gross profit margin = 240,000 ÷ 800,00030%
Gross profit = 800,000 − 560,000240,000 SAR
Formula: Net sales − cost of goods sold
Don't confuse it with
Net profitGross profit is before operating expenses and Zakat, and net profit is after everything.