Gross Profit is one of several important measurements of a company’s profitability. Specifically, it is derived from taking sales revenue and subtracting the cost of goods sold.Cost of goods sold (or COGS) includes the direct costs of raw materials and labor involved in making the products. What is left, gross profit, tells management and other interested parties how much revenue remains after subtracting the cost of producing the goods. It is often used to compare against other years’ results, other companies’ results or derived profitability ratios. Let’s compare Joe's Candies and Lisa's Sweets. Each has revenue of $100 million. But Joe's Candies' cost of goods sold is $80 million, compared to Lisa’s $90 million. So Joe's gross profit is $20 million, while Lisa's gross profit is only $10 million. Analysts usually use gross profit in order to calculate gross profit margin, which is the same metric but represented as a percentage of revenue. In this case Joe's gross profit margin is 20% ($100 million-$80 million, divided by $100 million) and Lisa's gross profit margin is 10%. Thus, Joe's Candies was more profitable at making its products this year than Lisa's Sweets. Joe's was able to make their products for a lower cost per dollar of revenue, leaving a higher gross profit.