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Subtracts direct costs from trailing twelve-month revenue, exposing the annual surplus generated before operating expenses consume it.
Gross profit (TTM) is total revenue minus the direct costs of goods or services over the last year. It's the money left to cover operating costs, interest, taxes and profit.
Gross profit represents the money remaining after subtracting the direct costs of producing goods or services from total revenue. This fundamental profitability measure shows how efficiently a company converts raw materials, labour, and manufacturing overhead into sellable products. Gross profit funds all other business activities—R&D, marketing, administration, and ultimately net income.
The calculation:
Gross Profit = Revenue - Cost of Goods Sold (COGS)
For example, if a company has $500 million in revenue and $300 million in COGS, gross profit is $200 million.
What COGS includes:
- Manufacturing: Raw materials, direct labour, factory overhead
- Retail: Wholesale cost of merchandise
- Software: Hosting costs, third-party licenses, support staff directly tied to delivery
- Services: Direct labour costs for service delivery
Why gross profit matters:
- Pricing power indicator: High gross profit suggests strong pricing versus costs
- Business model insight: Reveals fundamental economics of the product or service
- Capacity for investment: Gross profit must cover all operating expenses
- Competitive position: Higher than peers often indicates cost advantages or premium positioning
Gross profit varies dramatically by industry:
- Software/SaaS: 70-90% gross margins typical
- Pharmaceuticals: 60-80% due to high R&D amortisation in other expenses
- Retail: 20-40% depending on segment
- Groceries: 15-25% due to thin margins
- Manufacturing: 25-40% typically
Analyse gross profit trends alongside revenue. Growing revenue with stable or improving gross profit indicates healthy scaling. Declining gross profit despite revenue growth may signal pricing pressure, rising input costs, or unfavourable product mix shifts.