Difference Between Gross Profit and Operating Profit
The word Gross means “before any deductions”. This implies that profit before any deductions is called Gross profit. It is also called “Sales Profit”.
It is the difference between total revenue earned from selling products/services and total cost of goods/services sold. (Depending if a company is selling goods or services)
Gross Profit = Net Sales – Cost Of Goods Sold
GP = Net Sales – COGS
Gross Profit can be found on a company’s trading account
Net Sales = 1,50,000
Opening Stock = 10,000, Purchases = 1,00,000, Closing Stock = 20,000
GP = Net Sales – COGS (OS +P – CS)
GP = 1,50,0000 – (10,000 + 1,00,000 – 20,000) = 60,000
The profit earned from a firm’s core business operations is called Operating profit. So, a shoe company’s operating profit will be the profit earned from only selling shoes. The Operating profit doesn’t include any profits earned from investments and interests. It is also known as “Operating Income”, “PBIT” (Profit before Interest and Taxes) and “EBIT” (Earnings before Interest and Taxes).
It is the excess of Gross Profit over Operating Expenses.
Operating Profit = Gross Profit – Operating Expenses
Operating Profit = Net Profit – Non-Operating Expenses – Non-Operating Income
Gross profit from operations of a shoe company = 20,00,000
Profit from investment = 1,00,000
Operating Expenses for Selling Shoes = 10,00,000
Operating Profit = 20,00,000 – 10,00,000 = 10,00,000.
*Any other profit earned from different sources, except operations of the business, will not be included to calculate the operating profit.