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Gross profit is defined as the difference between revenue and the cost of goods sold (COGS). This calculation provides insight into a company's efficiency in producing goods and selling them at a profit before accounting for other expenses like operating expenses, taxes, or discounts.

When determining gross profit, the formula is crucial: revenue represents the total income generated from sales, while the cost of goods sold includes all direct costs attributable to the production of the goods that were sold during a specific period. By subtracting COGS from revenue, businesses can see how much money is left over to cover operating expenses and generate profit.

This measure is particularly important for businesses to assess their gross margin and understand their profitability on core operations. It serves as a foundational metric for further financial analysis, including the evaluation of operating efficiency and overall financial health. Understanding gross profit helps stakeholders make informed decisions regarding pricing, production management, and inventory control.