There are various terminologies used to express the profit at various stages of production and earnings when discussing a company’s earnings. At different stages of the process, Gross Profit, operational profit, and Net Income all indicate profit. Gross Profit, also known as Cost of goods sold (COGS), is the money a business makes after deducting costs incurred in the manufacture and sale of its goods. This statistic provides important insight into how well a company manages its Production costs, such as labor and supplies, to generate revenue from its goods and services. Subtract the cost of every item sold during the accounting period from the total revenue to determine Gross Profit.

The total amount made from sales within a certain period is referred to as revenue, often known as net sales. Deductions for returns and discounts can be included. For instance, net sales in the retail sector are reported after subtracting client refunds from total revenue. Revenue is frequently referred to as “the top line” because it appears first on the income statement.

The phrase “Cost of goods sold” (COGS) refers to the direct costs incurred in producing a company’s goods. This often covers the cost of raw materials, labor for manufacturing workers, equipment, repairs, utilities for the production facility, and shipping. Gross Profit often excludes fixed costs like salary, rent, utilities, and insurance and is primarily made up of variable costs that change with manufacturing output.

Some businesses, however, employ absorption costing, which involves allocating a percentage of their fixed expenses to each unit produced. If a manufacturing facility produced 5,000 automobiles in a quarter while paying $15,000 in rent, it might assign $3 to each vehicle produced under absorption costing.