Gross profit
Gross profit (brutowinst) is the amount by which net turnover exceeds cost of sales. The term is sometimes used as the same as gross margin in euros.
What does gross profit mean?
Gross profit (brutowinst) is the amount by which net turnover exceeds cost of sales. The term is sometimes used as the same as gross margin in euros.
It is an interim result before other operating expenses, interest and taxes. The definition of cost of sales must stay consistent for comparison between years.
How does it work?
Gross profit is the amount in euros left when you deduct the cost of the goods or services sold from net turnover. Trading companies calculate it per item: selling price excluding VAT less purchase price. In the annual accounts it is the same number as the gross turnover result of art. 2:377(4)(c) DCC. All other costs are still to be paid out of gross profit: staff, rent, marketing, depreciation, interest and tax.
For cost of sales, what was sold counts, not what was purchased. That is why the change in inventory belongs in the calculation: opening inventory plus purchases less closing inventory is the purchase value of turnover. Closing inventory counted too high lowers cost of sales and raises gross profit by the same amount; the following year that effect reverses. Inventory that fetches less than it cost is written down to the lower current value (art. 2:387(2) DCC).
Example
A bicycle shop (BV) starts 2025 with € 80.000 of inventory, buys € 310.000 and counts € 95.000 at the end of December. Purchase value of turnover: 80.000 + 310.000 − 95.000 = € 295.000. Net turnover € 470.000. Gross profit: 470.000 − 295.000 = € 175.000. Per bicycle: purchase € 800, sale € 1.250 excluding VAT, gross profit € 450. That is a mark-up of 450 / 800 = 56% on the purchase price and a margin of 450 / 1.250 = 36% on the selling price. If closing inventory proves to have been counted € 5.000 too high, actual gross profit is € 170.000.
In the annual accounts
Interim result in the P&L, not a balance sheet item.
Difference from gross margin
The words are used interchangeably. Anyone who makes a distinction calls the amount in euros gross profit and the percentage of turnover gross margin. Watch out for a second confusion: mark-up is gross profit divided by the purchase price, margin is gross profit divided by the selling price. The same € 450 is a 56% mark-up and a 36% margin. Anyone who applies a 36% mark-up and expects a 36% margin falls short.
Common mistakes
- Presenting gross profit as net profit
- Using turnover including VAT
What should you watch for?
- Count the inventory on the balance sheet date. Without a count, gross profit is an estimate.
- Book purchase discounts, supplier bonuses and inbound freight costs to the purchase value and not to other costs.
- Compare gross profit according to the books with the sum of the margins per article sold from the till system or web shop. A gap points to shrinkage, theft, or counting and booking errors.
- The publication documents of a micro or small BV do not show gross profit. A bank or buyer who wants to see it asks for the internal profit and loss account.
Legal basis and source
art. 2:377 DCC
Frequently asked questions
Is gross profit the same as profit before tax?
No. Gross profit is turnover less cost of sales. Profit before tax is what remains after staff, premises, depreciation, other costs and interest have also been deducted.
Can gross profit be negative?
Yes, if you sell below cost. That happens in a clearance sale of obsolete inventory, or when the purchase price has risen while the selling price is fixed in a contract.
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