What is the Difference Between Gross Profit and Operating Profit?
🆚 Go to Comparative Table 🆚The difference between gross profit and operating profit lies in the costs they consider during their calculations. Both metrics are important measures of a company's financial health, but they represent different stages of the production cycle and earnings process.
- Gross Profit: Gross profit is the amount of income left over after subtracting the cost of goods sold (COGS) from the total sales revenue. It represents the profit made on each sale before accounting for other expenses such as operating costs, taxes, and interest. Gross profit is calculated as: Gross profit = Revenue - Cost of Goods Sold.
- Operating Profit: Operating profit, also known as operating income or earnings before interest and tax (EBIT), is derived from gross profit and is the residual income after accounting for all expenses related to the production process, including operating costs. Operating profit reflects how well a company generates profit from its operations, excluding non-operating income and expenses.
In summary:
- Gross profit focuses on the profit made on each sale before accounting for operating costs and other expenses.
- Operating profit considers all expenses related to the production process, including operating costs, and represents the profit generated from a company's operations.
On this pageWhat is the Difference Between Gross Profit and Operating Profit? Comparative Table: Gross Profit vs Operating Profit
Comparative Table: Gross Profit vs Operating Profit
Here is a table comparing the differences between gross profit and operating profit:
| Feature | Gross Profit | Operating Profit |
|---|---|---|
| Definition | Gross profit is the income earned by a company after deducting the direct costs of producing its goods or services, calculated as Revenue - Cost of Goods Sold (COGS). | Operating profit is the residual income after accounting for all costs associated with the production of goods or services and the day-to-day operations of the business, calculated as Gross Profit - Operating Expenses. |
| Calculation | Gross Profit = Revenue - COGS. | Operating Profit = Gross Profit - Operating Expenses. |
| Expenses Considered | Includes direct costs such as raw material costs, direct labor, equipment costs involved in production, and utilities for the production facility. | Includes both direct costs (included in Gross Profit calculation) and indirect costs such as administrative costs, marketing expenses, and other non-production costs. |
| Financial Statement | Found on the income statement, which shows the company's revenues, expenses, and profits. | Found on the income statement, which shows the company's revenues, expenses, and profits. |
Both gross profit and operating profit are essential metrics for understanding a company's financial well-being, as they represent income earned at different stages of the production cycle and earnings process.
Read more:
- Operating Profit vs Net Profit
- Net Profit vs Gross Profit
- Gross Profit vs Gross Margin
- Operating Income vs Net Income
- Gross vs Net Income
- Net Income vs Net Profit
- EBITDA vs Operating Income
- Contribution Margin vs Gross Margin
- Profit vs Revenue
- Gross Margin vs EBITDA
- Profit vs Gain
- Cash vs Profit
- Profit vs Profitability
- Gross Working Capital vs Net working Capital
- Net vs Gross
- Margin vs Profit
- Turnover vs Profit
- Balance Sheet vs Profit vs Loss
- Surplus vs Profit