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Two critical profitability metrics for any organization include gross profit and net income. Gross profit represents the income or profit remaining following the production costs have been subtracted from revenue. Revenue is the quantity of income generated from the sale of a company's goods and services. Gross profit helps investors to find out how much profit a business earns from the production and sale of its goods and services. Gross profit may also be called gross income.
On the other hand, net income may be the profit that remains all things considered expenses and costs have now been subtracted from revenue. bruto naar netto loon Net income or net profit helps investors determine a company's overall profitability, which reflects on what effectively an organization has been managed.
Understanding the differences between gross profit vs. net income might help investors determine whether a business is earning a profit, and if not, where the business is losing money.
Gross profit, operating profit, and net income reference the earnings that a company generates. However, every one represents profit at different phases of the production and earnings process.
Gross profit is a company's profits earned after subtracting the costs of producing and selling its products—called the price of goods sold (COGS). Gross profit provides insight into how efficient a company are at managing its production costs, such as labor and supplies, to make income from the sale of its goods and services. The gross profit for a company is calculated by subtracting the expense of goods sold for the accounting period from its total revenue.
Revenue is the total amount of cash earned from sales for a certain period, such as for instance one quarter. Revenue may also be listed as net sales because it may include discounts and deductions from returned or damaged merchandise. For example, companies in the retail industry often report net sales as their revenue figure. The goods that's been returned by their customers is subtracted from total revenue. Revenue is usually known as the "top line" number since it is situated at the top of the income statement.
We are able to see from the COGS items in the list above that gross profit mainly includes variable costs—or the expense that fluctuate depending on production output. Typically, gross profit doesn't include fixed costs, which are the costs incurred whatever the production output. Like, fixed costs might include salaries for the corporate office, rent, and insurance.
However, some companies might assign a portion of the fixed costs utilized in production and report it centered on each unit produced—called absorption costing. For example, let's say a production plant produced 5,000 automobiles in a single quarter, and the business paid $15,000 in rent for the building. Under absorption costing, $3 in costs could be assigned to each automobile produced.
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