Gross income (gross profit) is equal to company’s revenue minus all cost of goods sold (COGS). Gross income is just one type of income; other types of income are operating income, pre-tax income or net income. However, gross income normally is larger than any other type of income of the same company.
Gross income is not as much important as net income or operating income for the company, but the changes in gross income may be very important indicator. As gross income is the largest profit indicator in the company, also it is the most stable one. And if gross income changes significantly, it may be an important indicator. Only if changes were caused by variation in depreciation (it is in COGS) then importance of it is lower.
The best way to measure if company’s gross profit is normal is the calculation of gross margin and comparison of it to similar companies that work in the same industry group. Higher gross margin may signify that company is more efficient.
The occasions when company’s gross income is negative (that would mean gross loss) are quite rear and such situation would be extremely dangerous for the company. However, in our day’s analysis gross income isn’t used as much as EBITDA. All income indicators are easy to find in income statement, but keep in mind that some companies in their reports may indicate gross income as gross margin, while gross margin usually has different understanding.
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