Gross Operating Profit

Entries at the top of the Profit and Loss, are used to calculate Gross Operating Profit, Sales – COGS – Selling Expenses. Gross Operating Profit divided by Sales, gives the Gross Operating Profit Margin.

An understanding of a Company’s Gross Operating Profit is key as this is directly related to the core operations of the business. Gross Operating Profit is calculated by the following formula.

GOP = Sales – COGS – Selling Expenses

Thus, Gross Operating Profit is the key indicator to understand the viability of a business. Breaking down the key Profit and Loss items. Sales is generically calculated by Units Sold multiplied by the Selling Price. The production of goods for sale, is called the Cost of Goods Sold (COGS). This, this considers the cost of raw materials into the production cycle. Finally, if split out in the P&L, there is the Selling Expenses, separated from Other Operating Expenses.