Gross profit
Gross profit is revenue less the direct cost of what was sold: the cost of goods sold, cost of sales or cost of services. BDC defines it that way; the Canada Revenue Agency’s guide uses gross business income minus cost of goods sold. It sits above operating expenses on an income statement.
In BDC’s walk-through of an income statement, gross profit is the first profit line, after revenue and the cost of goods sold. BDC defines it as the difference between revenue and the cost of goods sold, sales or services. BDC notes that manufacturers say cost of goods sold, retailers and wholesalers say cost of sales, and companies that offer services often say cost of services.
Where it sits
BDC divides gross profit by revenue to get the gross margin, and subtracts operating expenses from gross profit to reach operating income. The Canada Revenue Agency’s guide for the self-employed has its own gross profit line, which is gross business income minus cost of goods sold. See business valuation methods compared for how earnings measures feed a price, and EBITDA margin for a related ratio.
What to check or ask
- Which costs the seller counts as direct, and which sit in operating expenses
- Whether that split is the same in every year being compared
- How inventory was counted at the start and end of each period
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentWhat is an income statement?
- 02Canada Revenue AgencyGovernmentSelf-employed Business, Professional, Commission, Farming, and Fishing Income: Chapter 2 – Income
Deavo is an advertising and listings platform, not a brokerage, law firm or valuation firm. This page is general information, not legal, tax, accounting or valuation advice, and rules differ by province. Confirm anything you rely on with a qualified professional before you act on it.