Financial Education

Gross profit is computed as sales, less the cost of those sales. This provides a basic measure of a company’s operating performance. Some companies use a single-step format and do not break this out as a separate line item, though it can easily be calculated from the information given. Instead, the single-step format lumps all operating expenses (other than taxes) together.

By contrast, the multiple step format provides subtotals for important items. For example, sales less cost of sales would be presented as gross profit. Both formats are acceptable in practice, although the multiple-step format is more useful.

For more information, see all articles on: Accounting, Common Size Analysis, Financial Statement Analysis, Fundamental Analysis, Ratio Analysis

See also:

Profit Margins

Cash Flow Return on Investment (CFROI)

Pensions: Defined Benefit versus Defined Contribution

Defined Benefit versus Defined Contribution Plans

Hybrid Retirement Plans and Other Employee Benefit Plans