Next video:
Loading the player...

A company’s income statement includes the company’s gross, operating and net profits. All three require dividing the profit by revenue to calculate a profit margin.

Gross profit is all income that remains after accounting for the cost of goods sold, such as raw materials and labor, excluding debt, taxes, operating and overhead costs, and other one-time expenditures. Gross profit reflects the percentage of each dollar of revenue retained after paying for the cost of production.

Operating profit includes overhead, operating, administrative and sales expenses needed to run the business, excluding debts, taxes and other expenses, but including the amortization and depreciation of assets. Operating profit reflects the percentage of each dollar remaining after paying all necessary expenses to run the business.

Net income is the bottom line. It reflects the revenue remaining after all expenses and additional income streams are accounted for, and reveals a company’s ability to turn income into profit.

Money lost on basic operations weakens the gross and operating profit margins, leaving less revenue for other expenses. 

  1. No results found.
Related Articles
  1. Investing

    A Look At Corporate Profit Margins

    Take a deeper look at a company's profitability with the help of profit margin ratios.
  2. Investing

    Profit Metrics: Gross, Operating & Net Profits

    In addition to net profit, most analysts look at a company’s gross profit and operating profit to gauge performance.
  3. Investing

    Analyzing Operating Margins

    Find out how to put this important component of equity analysis to work for you.
  4. Small Business

    How Gross Margin Can Make or Break Your Startup

    Find out how your startup's gross margin can impact your business, including why a mediocre margin may spell disaster for a budding business.
  5. Investing

    What's a P&L Statement?

    A profit and loss statement, also called the income statement, is a financial statement that companies use to report their income and expenses for a quarter or a year.
  6. Investing

    Calculating Economic Profit

    Economic profit is the difference between the revenue a firm earns from sales and the firm’s total opportunity costs.
  7. Investing

    Understanding Gross Sales

    Gross sales represents the overall revenue of a company through its sales activities.
  8. Investing

    Apple's 5 Most Profitable Lines of Business (AAPL)

    Learn about how Apple generates its profits. It breaks its results by geographic region, with all showing year-over-year improvement.
  9. Investing

    What is Profit?

    Profit is a general term used to denote when earnings exceed the expenses incurred to generate those earnings.
Hot Definitions
  1. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  2. Absolute Advantage

    The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost ...
  3. Nonce

    Nonce is a number added to a hashed block, that, when rehashed, meets the difficulty level restrictions.
  4. Coupon

    The annual interest rate paid on a bond, expressed as a percentage of the face value. It is also referred to as the "coupon ...
  5. Socially Responsible Investment - SRI

    Socially responsible investing looks for investments that are considered socially conscious because of the nature of the ...
  6. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
Trading Center