Total profit, also called gross profit, is calculated by taking the total received from sales and subtracting the cost of the goods sold. It does not include expenditures, such as insurance and taxes. Gross profit is used to calculate the gross profit margin.Continue Reading
This is all the money the business made by selling products and services. Take all the money received by customers, and add it up. If a company sells Item A for $10, Item B for $5 and Item C for $15, the total revenue is $35.
The cost includes items that were directly involved in the production of the item, such as materials, shipping costs and merchant fees. It does not include overhead items, such as office supplies, administrative costs, legal fees or rent payments. If Item A costs the company $5 to make, sell and ship, Item B costs $2 and Item C costs $10, then the cost of the total goods is $17.
The difference is the company's total profit. In the example, $35 minus $17 is $18, so $18 is the total profit. This number is then used to calculate the gross profit margin, a measurement of operating efficiency, by taking the gross profit and dividing it by the total revenue. For example, it is $18 divided by $35 for a profit margin of 51 percent.
Preparing a profit and loss statement for a business entails calculating the net profit by knowing information, such as revenue, net sales, cost of goods, gross margin and operating expense for a certain period of time, as noted by the Edward Lowe Foundation. To prepare a P & L statement, which is also called an income statement, it is important to know what different terms mean and any equations needed to determine the net profit.Full Answer >
The gross profit ratio is calculated by dividing a firm’s gross profit figure by its net sales (revenue minus the cost of goods sold). The equation is a standard financial metric used to assess a company’s financial health and stability.Full Answer >
To prepare a profit and loss sheet, start with the total income or revenue of the business or company and subtract the cost of goods or products. This gross profit value must then be subtracted by all the expenses of the company, resulting in a net profit or loss.Full Answer >
Restaurants, caterers and other foodservice businesses use a standard food cost formula to determine their profit margin on food sales. A profitable restaurant normally has a food-cost percentage of anywhere from 28 to 35 percent.Full Answer >