How is gross profit defined?

Gross profit is defined as the revenue remaining after deducting the cost of goods sold (COGS) from total revenue. This metric is crucial because it provides insights into how efficiently a company utilizes its resources to produce goods or services. By focusing on revenue generated from sales and subtracting only the direct costs associated with the production of those goods, gross profit highlights the profitability of a company's core activities without considering other expenses such as sales expenses, administrative costs, taxes, or interest.

Understanding gross profit is fundamental for evaluating a company's financial health and operational performance. It allows stakeholders to determine how well a company is managing its production costs relative to its sales revenue. A higher gross profit indicates more efficiency and potential for profitability, whereas a lower gross profit margin may suggest that a company needs to manage its production costs more effectively.

The other definitions listed do not accurately capture this specific relationship between revenues and the costs of goods sold, and therefore, they do not align with the widely accepted financial definition of gross profit.