What is the Difference between Gross Profit and Operating Profit?

Gross Profit Vs 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”. Difference between gross profit and operating profit can be understood from their point of origin, deductions (if any), etc.

It is the difference between total revenue earned from selling products/services and total cost of goods/services sold.

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

Related Topic – Difference between Net Profit and Operating Profit

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 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

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. 

One of the main points of difference between gross profit and operating profit is that gross profit takes into account earnings from all sources whereas operating profit only considers profits earned from operations.

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