Gross profit is the difference between a company's revenue from sales and the cost of goods sold (COGS). It measures how efficiently a business produces and sells its products. Gross profit does not account for other expenses like operating costs, taxes, or interest. Calculating gross profit helps businesses understand their profitability at a basic level. A higher gross profit indicates that a company is effectively managing its production costs relative to its sales. This metric is essential for assessing the financial health of a business and making informed decisions about pricing and inventory management.