Gross profit is revenue minus cost of goods sold (COGS) — direct costs of producing what you sell. It measures production efficiency. A company with $1B revenue and $400M COGS has $600M gross profit (60% gross margin). High gross margins (60%+) suggest pricing power and operational leverage; low margins (15-25%) suggest commodity-like competition. Software companies often achieve 80%+ gross margins; retailers commonly run 25-40%. Gross profit doesn't account for operating expenses, interest, or taxes — that's operating profit and net profit, respectively. Improving gross margin over time is one of the strongest indicators of business improvement.
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August 22, 2026 · Aditya Gupta
Investing
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