What is Gross Profit? Gross profit is what remain after cost of goods are deducted from gross revenues. This is expressed as a whole number. Both gross profits and gross margins may be expressed interchangeably because they express the same result in a different way. Gross profits are the whole number of gross revenues less costs of goods. Gross margins is a ratio, or percentage, where cost of goods are deducted from gross revenues. Then, this difference is divided by the gross revenues.
Understanding Gross Profits, and then gross margins, will enable you to empower yourself with knowledge of value investing techniques. For Stock Market For Beginners – How To Invest in Stocks, make certain to follow along with this free video series to learn as much as you can about how to invest in stocks.
Gross Profit & Cannabis Stocks
Positive gross profit is one of the first metrics a firm attempts to achieve after initially producing products. There are multiple layers of cost of goods sold.
For instance, with Cresco Labs Q4 2021, these are the data points for gross profits:
- Gross Revenue: $212.9M
- Cost of Goods Sold: $94.5M
- Gross Profits: $118.4M
- Gross Margins: 55.6%
After deducting cost of goods sold (94.5M), Cresco Labs gross profit was $118.4M. And, while one could interchangeably use gross profits and gross margins, they are expressed in different terms.
What is in cost of goods sold (COGS)
What are the costs associated with selling a product? Cost of goods sold are the carrying costs associated with producing a product. For instance, with cannabis companies, there may be costs in the form of:
- Raw materials & supplies;
- Labor; and
With these, raw materials could be seeds, fertilizers & nutrients, and product packaging. Labor is the cost of individuals in the production of the cannabis products. And, overhead associated with the production of goods such as electricity, water, and the rent for the buildings.
Finding The Best Cannabis Stocks
Once you are able to narrow what to search for within the financial statements of any one cannabis stock, you can then begin to pick your favorite cannabis stocks to invest in. You can see The Best Cannabis Stocks – My Top Picks to see what criteria I have used in determining what I have invested in.
To further your knowledge, make certain to sign up for the Value Investing Video Course series where I break down all of the aspects of how to understand financial statements.