What is the Difference Between Gross Profit and Operating Profit?

Difference Between Gross Profit and Operating Profit

 

Gross 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

 

Example

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


 

Operating Profit

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 shoesThe 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

 

Example

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.