Gross profit definition including break down of areas in the definition. Analyzing the definition of key term often provides more insight about concepts. Gross profit can be defined as: Also called gross margin. Net sales minus cost of goods sold. Gross margin or gross profit can be found on a multi-step income statement, gross margin or gross profit being a subcategory, the calculation of gross margin or gross profit being net sales minus cost of goods sold. Don’t confuse the term net sales for net income. Net sales is sales less contra sales accounts. Gross profit or gross margin is a useful calculation because the relationship between sales or revenue and the cost of goods sold, the cost of inventory used to generate revenue, is one of the most important relationships for a business to understand.
