What is the gross margin

In carrying out commercial or financial activities, any enterprise faces the need to identify certain economic indicators. They are needed to analyze the results of labor and to identify their profitability. One of the main indicators is gross profit.

Gross profit is the total profit received before all deductions and deductions are made. That is, it can be defined as an indicator of the excess of income over all current costs. The composition of gross profit includes depreciation of fixed capital and income derived from property

Profit is the end result of an enterprise. However, at the end of the reporting period, a loss can also be obtained. It can be the result of unnecessary costs of production or lower than planned revenues from the sale of goods and services. Therefore, the correct calculation of indicators and production planning are the main conditions for profitable activity.

Some costs are compensated for by profit and do not include them as costs of circulation. The total costs of the enterprise, which are part of the costs of treatment and paid out at the expense of profits, are usually called economic costs. They exceed the costs of circulation. This is the difference between economic profit and gross profit. Before calculating the gross profit, it is necessary to determine the costs of circulation. The difference between gross income and these costs is the gross profit. The economic profit of the enterprise will differ from the gross profit by the amount of costs not included in the costs of circulation.

Therefore, any enterprise should strive to obtain economic profit, which is the final indicator of the total income received. It shows that the company pays for its production costs and is able to independently finance further development.

There are many indicators of the profitability of the enterprise and the values of profit. It is determined in percentages and levels. But gross profit is one of the main indicators. It determines the level of income received from the main activity. This is the amount of income from the sale of goods, property, including fixed assets, the total income received from all transactions not related to sales, from which all expenses that were incurred as a result of this activity are deducted.

This indicator fully reveals the results from the whole activity of the enterprise. As a result, it is possible to determine unprofitable and profitable business transactions. This gives an opportunity for economic analysis and determining the optimal ways of development.

Economic analysis is very important in the activities of each enterprise, regardless of what services or products it implements. Proper planning and organization of labor depend on this. With a negative activity indicator, it is necessary to identify problem areas, the costs of which exceeded the planned ones. Reducing the cost of production, that is, the cost of production, is one way to increase gross profit from its sale. It is profit that gives an opportunity for further development of the enterprise, introduction of new technologies, installation of new technological equipment and rational use of material resources and labor. Correct additional investment of the received profit in development of manufacture, pays off during some time. The main thing is to be able to build a production process rationally and economically. To determine the benefits of the organization of production and there are indicators of gross profit, net profit, profit from sales, profit from other activities, etc.