What is gross profit?

Gross profit is defined as sales revenue minus the cost of goods sold (COGS). This figure represents the profit a company makes after accounting for the direct costs associated with producing the goods it sells. By calculating gross profit, a business can assess its efficiency in selling products at a markup over their cost.

Calculating gross profit is crucial for financial analysis because it helps businesses understand how well they are performing in generating profit from core operations. It provides insight into pricing strategies and cost control. When a company has a higher gross profit margin, it indicates that it retains more of each sales dollar as gross profit, which can be used to cover operating expenses, pay down debt, or reinvest in the business.

The other options represent different financial metrics that do not directly measure the profitability from sales after accounting for the costs to produce the goods sold. Therefore, they do not fit the definition of gross profit as precisely as the correct choice does.