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how the federal trade commission ftc helps protect consumers | of course not all companies are involved in greenwashing some products are genuinely green these products usually come in packaging that spells out the real differences in their contents from competitors versions the marketers of truly green products are only too happy to be specific about the beneficial attributes of their products the website for allbirds for example explains that its sneakers are made from merino wool with laces made from recycled plastic bottles and insoles that contain castor bean oil even the boxes used in shipping are made from recycled cardboard the u s federal trade commission ftc helps protect consumers by enforcing laws designed to ensure a competitive fair marketplace the ftc offers guidelines on how to differentiate real green products from the greenwashed examples of greenwashingthe ftc offers several illustrations of greenwashing on its website which details its voluntary guidelines for deceptive green marketing claims below is a list of examples of unsubstantiated claims that would be considered greenwashing | |
what are some other types of greenwashing | one common form of greenwashing is to include misleading labeling or bury environmentally unsound practices in the fine print this can include use of terminology such as eco friendly or sustainable which are vague and not verifiable imagery of nature or wildlife can also connote environmental friendliness even when the product is not green companies may also cherry pick data from research to highlight green practices while obscuring others that are harmful such information can even come from biased research that the company funds or carries out itself | |
how can you spot greenwashing | if greenwashing is going on there is often no evidence to back up the claims that a company is making sometimes verifying can be difficult but you can look to third party research and analyst reports as well as check the product s ingredients list true green products will often be certified by an official vetting organization which will be clearly labeled | |
why is greenwashing bad | greenwashing is deceitful and unethical because it misleads investors and consumers who are genuinely seeking environmentally friendly companies or products often green products can be sold at a premium making them more expensive which can lead consumers to overpay if greenwashing is revealed it can seriously damage a company s reputation and brand the bottom lineenvironmentalism and environmental social and governance esg criteria have become important considerations for some investors this has led many businesses to focus on becoming more eco friendly by reducing waste cutting emissions recycling and using renewable energy among other efforts however some companies can instead cut corners and claim that they are doing these things to gain favor when in reality they are not greenwashing is an unethical practice that can mislead investors and the general public | |
what is gresham s law | gresham s law is a principle that states that bad money drives out good and can be applied to the currency markets the law stemmed from the historical use of precious metals to manufacture coins and their subsequent value since the abandonment of metallic currency standards the theory often describes the stability and movement of different currencies in global markets understanding gresham s lawsir thomas gresham lived from 1519 to 1579 and wrote about the value and minting of coins while working as a financier and later founded the royal exchange of the city of london when henry viii changed the composition of the english shilling replacing a substantial portion of the silver with base metals citizens separated the english shilling coins and hoarded the coins containing more silver which were worth more than their face value both currency types were liquid and available simultaneously for use as acceptable forms of exchange gresham observed that bad money was driving out good money from circulation bad money is a currency with equal or less value than its face value good money has the potential for a greater value than its face value people will choose to use bad money first and hold onto good money the scottish economist henry dunning macleod attributed this law to gresham in the 19th century good money vs bad moneyhistorically mints manufactured coins from gold silver and other precious metals which gave the coins their value issuers of coins sometimes lowered the level of the precious metals used and passed the coins as full value coins new coins with less metal content had less market value and traded at a discount the old coins retained a higher value however legal tender laws mandated that new coins with less metal content have the same face value as older coins the new coins were legally overvalued and the old coins were legally undervalued governments rulers and other coin issuers often implemented this policy to obtain revenue and repay debts borrowed in old coins using new coins at par value legally forced to treat both types of coins as the same monetary unit buyers passed along their less valued coins as quickly as possible and held onto the old coins thus debasing the currency creating a fall in the purchasing power of the currency units to fight gresham s law governments often blamed speculators implemented currency controls prohibited removing coins from circulation or confiscated privately owned precious metal supplies gresham s law and legal tendergresham s law is evident in a modern economy with legal tender laws when all currency units are legally mandated to be recognized at the same face value the traditional version of gresham s law operates in the absence of effectively enforced legal tender laws gresham s law operates in reverse as good money drives bad money out of circulation where people can decline to accept less valuable money with the adoption of paper money as legal tender the issuers of money can print money into existence and this ongoing debasement has led to a persistent trend of inflation as the norm in most economies if a currency loses value rapidly people tend to stop using it in favor of more stable foreign currencies sometimes even in the face of repressive legal penalties during a period of hyperinflation in zimbabwe in 2008 the zimbabwe dollar was the legal currency and many people abandoned its use in transactions eventually forcing the government to recognize de facto and subsequent de jure dollarization of the economy in the chaos of an economic crisis with a near worthless currency the government was unable to enforce its legal tender laws good stable money drove bad hyperinflated money out of circulation stable currencies such as the u s dollar or the euro can be considered good money as they circulate as an international medium of exchange weaker currencies of less developed nations circulate very little outside the jurisdictions of their issuing countries and can be considered bad money example of gresham s lawin 1982 the u s government changed the composition of the penny to contain 97 5 zinc this change made pre 1982 pennies worth more than their post 1982 counterparts while the face value remained the same due to the debasement of the currency and resulting inflation copper prices rose from an average of 0 6662 lb in 1982 to 3 0597 lb in 2006 with the purchasing power of a penny falling by nearly 80 12as people began harvesting copper from old pennies the u s imposed stiff penalties for melting coins and the legislation carried a 10 000 fine or up to five years in prison if convicted of the offense 3 | |
what are legal tender laws | countries implement legal tender laws to define what currency is recognized by law as a means to settle a public or private debt or meet a financial obligation including tax payments contracts and legal fines or damages the national currency is legal tender in every country | |
what is grexit | grexit an abbreviation for greek exit refers to greece s potential withdrawal from the euro zone and a return to the drachma as its official currency instead of the euro understanding grexitgrexit gained notoriety in early 2012 and remained in the financial vernacular for years after that many pundits and even some greek citizens floated the idea that greece should withdraw from the eurozone as a viable solution to the country s debt crisis leaving the euro and bringing back the greek drachma was thought to be a way to allow greece to recover from the brink of bankruptcy a devalued drachma could encourage overseas investment and allow other europeans to visit greece on the cheap by paying in the more expensive euro currency in this way proponents argued that the greek economy would suffer in the near term but could eventually recover with far less assistance from other eurozone countries and the international monetary fund imf perhaps even quicker than via eurozone bailouts however opponents argued that a return to the drachma would lead to a very rough economic transition and far lower living standards which could result in even more civil unrest some in europe worried that grexit could even cause greece to embrace other foreign powers that might not align with the interests of the eurozone opponents to grexit have seemingly won out at least in the years since grexit entered the discussion as of 2021 greece remains in the eurozone with help from bailout loans in 2010 2012 and 2015 1 although the term grexit doesn t make headlines as often anymore some have argued that grexit remains an eventual possibility greece continues to attract foreign investment and has implemented many austerity measures origins of greece s debt crisisgrexit points to decades old problems in greece such as high government debt tax evasion and government corruption greece first joined the eurozone in 2001 but its government revealed just three years later that economic data was falsified so the country would gain entry 1 | |
when the global financial crisis struck it laid bare many of greece s structural problems greece s gross domestic product gdp shrank by 4 7 in the first quarter of 2009 and the deficit ballooned to more than 12 of gdp 2 the country subsequently suffered a string of credit rating downgrades culminating in standard poor s demoting greece s debt to junk status which caused the country s bond yields to soar reflecting the severe financial instability 3 | austerity and bailoutsin exchange for receiving multiple bailouts to avoid bankruptcy greece had to agree to austerity measures the first round of austerity in 2010 cut public sector wages raised the minimum retirement age and increased fuel prices subsequent measures over the following three years reduced public sector pay further cut greece s minimum wage reduced pension payouts gutted defense spending and raised taxes as a result unemployment rose to nearly 28 in the fall of 2013 far higher than the 11 average for the euro zone as a whole 4 one criticism of the bailouts has been that little of the money has gone to help greek citizens directly rather it has mostly passed through greece and helped to repay greece s debt holders most of which are banks in other european countries germany for example has been the largest contributor to greece s bailout packages and its banks also are the largest investors in greek bonds 5 greek recoverythe economic and financial uncertainty in greece has improved markedly since the worst days of the crisis in august 2018 government officials announced the country had successfully exited the last of its bailout programs 1 ending the bailout programs allowed greece to begin selling 10 year bonds in 2019 for the first time in nine years this event marks a milestone in greece s recovery as it allows the country to raise money and continue its long journey to regain economic sovereignty 6the economy appeared to be entering a period of modest recovery from its significant economic troubles of 2010 2016 however like so many other countries greece experienced a deep recession in 2020 as a result of the global covid 19 pandemic unfortunately this led to an increase in the country s already exorbitantly high public debt experts estimate that a full recovery will only be feasible beyond 2021 7 | |
what is a gray market | a gray market is an unofficial market for financial securities gray or grey market trading generally occurs when a stock that has been suspended from trades off the market or when new securities are bought and sold before official trading begins the gray market enables the issuer and underwriters to gauge demand for a new offering because it is a when issued market i e it trades securities that will be offered in the very near future the gray market is an unofficial one but is not illegal the term gray market also refers to the import and sale of goods by unauthorized dealers in this instance as well such activity is unofficial but not illegal gray market explainedin gray market trading while the trade is binding it cannot be settled until official trading begins this may cause an unscrupulous party to renege on the trade due to this risk some institutional investors like pension funds and mutual funds may refrain from gray market trading the gray market for goods thrives when there is a significant price discrepancy for a popular product in different nations in many nations there is a substantial gray market for popular consumer devices and electronics because these can be easily purchased online and shipped to any location other popular gray market products include luxury cars high end apparel handbags and shoes cigarettes pharmaceuticals and cosmetics unauthorized dealers may import such items in bulk and despite adding a healthy markup sell them at a price still well below the local cost customers who buy such products for the discount price may face problems in the future and should ensure that they meet local safety and certification standards post sale service and support is another key issue as authorized dealers may be unwilling to service goods bought in the gray market consumers may also occasionally unwittingly buy a gray market product some indications that a product is likely to be from a gray market are a price that is considerably lower than that offered by other local retailers user manuals in a different language and photocopied manuals or duplicated software cds adverse impact on businessesthe size of some gray markets is substantial business outside official channels poses challenges for the manufacturers of the goods aside from the loss of sales that a company can book directly the gray market produces a risk to brand equity and damages relationships in the formal sales channel made up of wholesalers distributors and retailers whose exclusivity for sought after goods is weakened | |
what is grid trading | grid trading is when orders are placed above and below a set price creating a grid of orders at incrementally increasing and decreasing prices grid trading is most commonly associated with the foreign exchange market overall the technique seeks to capitalize on normal price volatility in an asset by placing buy and sell orders at certain regular intervals above and below a predefined base price for example a forex trader could put buy orders every 15 pips above a set price while also putting sell orders every 15 pips below that price this takes advantages of trends they could also place buy orders below a set price and sell orders above this takes advantages of ranging conditions understanding grid tradingan advantage of grid trading is that it requires little forecasting of market direction and can be easily automated major drawbacks however are the possibility of incurring large losses if stop loss limits are not adhered to and the complexity associated with running and or closing multiple positions in a large grid the idea behind with the trend grid trading is that if the price moves in a sustained direction the position gets bigger to capitalize on it as the price moves up more buy orders are triggered resulting in a bigger position the position gets bigger and more profitable the further the price runs in that direction this leads to a dilemma though ultimately the trader must determine when to end the grid exit the trades and realize the profits otherwise the price could reverse and those profits will disappear while losses are controlled by the sell orders also equally spaced by the time those orders are reached the position could have gone from profitable to losing money for this reason traders typically limit their grid to a certain number of orders such as five for example they place five buy orders above a set price if the price runs through all the buy orders they exit the trade with a profit this could be done all at once or via a sell grid starting a target level if the price action is choppy it could trigger buy orders above the set price and sell orders below the set price resulting in a loss this is where the with the trend grid falters ultimately the strategy is most profitable if the price runs in a sustained direction the price oscillating back and forth typically doesn t produce good results in oscillating or ranging markets against the trend grid trading tends to be more effective for example the trader places buy orders at regular intervals below a set price and places sell orders at regular intervals above the set price as the price falls the trader gets long as the price rises the sell orders are triggered to reduce the long position and potentially get short the trader profits as long as the price continues to oscillate sideways triggering both and sell orders the problem with the against the trend grid is that the risk is not controlled the trader could end up accumulating a larger and larger losing position if the price keeps running in one direction instead of ranging ultimately the trader must set a stop loss level as they can t continue to hold a losing let alone make bigger position indefinitely grid trading constructionto construct a grid there are several steps to follow in a with the trend grid assume a trader chooses a starting point of 1 1550 and a 10 pip interval place buy orders at 1 1560 1 1570 1 1580 1 1590 and 1 1600 place sell orders at 1 1540 1 1530 1 1520 1 1510 and 1 1500 this strategy requires an exit when things are going well in order to lock in profits assume the trader opts to use an against the trend grid they also choose 1 1550 as the starting point and a 10 pip interval they place buy orders at 1 1540 1 1530 1 1520 1 1510 and 1 1500 they place sell orders at 1 1560 1 1570 1 1580 1 1590 and 1 1600 this strategy will lock in profits as both buy and sell orders are triggered but it requires a stop loss if the price moves in one direction example of grid trading in the eurusdassume a day trader sees that the eurusd is ranging between 1 1400 and 1 1500 the price is currently near 1 1450 so the trader opts to use a 10 pip interval against the trend grid to potentially capitalize on the range the trader places a sell order at 1 1460 1 1470 1 1480 1 1490 1 1500 and 1 1510 a stop loss is placed at 1 1530 this assures there is a cap to the risk the risk is 270 pips if all the sell orders are triggered no grid buy orders are triggered and the stop loss is reached they also place buy orders at 1 1440 1 1430 1 1420 1 1410 1 1400 and 1 1390 they place a stop loss at 1 1370 the risk is 270 pips if all the buy orders are triggered no grid sell orders are triggered and the stop loss is reached the trader is hoping the price will move higher and lower or lower and higher within the range of 1 1510 and 1 1390 although they are also hoping that the price doesn t move too far outside that range otherwise they will be forced to exit with a loss in order to control their risk | |
what is a grinder | a grinder is a slang term for a person who works in the investment industry and makes only small amounts of money at a time on small investments over and over again grinders typically are hard working and highly respected investors who value every cent they make off their investments grinders who are investment advisors tend to keep in regular contact with their clients understanding grindersa grinder in this case stands for a person who grinds the term grind is defined as taking a thing and breaking it down into very small pieces in financial investing this describes a person who puts in significant work to bring in small amounts or profits in a highly tedious and laborious but ultimately effective manner a grinder also is thus an informal term used to describe the style of an investor who specializes in small trades while the term implies a high level of effort to achieve a satisfactory return a grinder rarely is inclined to work on larger trades for larger yields in contrast a grinder focuses on making a large quantity of smaller trades compensating for the lower returns of each individual trade by conducting them in large volumes example of a grinderto produce a return on investment a grinder may conduct 100 transactions each yielding a 50 profit this results in a total return of 5 000 in contrast an investor working with larger scale investments may conduct five trades each yielding a 1 000 profit this also results in a total of 5 000 while both investors achieved the same results the grinder did so by conducting transactions at a large volume while the other investor did not inherently the work required to complete 100 transactions is likely to be more involved in both time and effort than what is required to complete five trades this increase in required effort also applies to the use of the term grinder regardless of the level of success the grinder experiences other uses of the terms grind and grinderthe term grind can be applied to any tedious yet lengthy endeavor regardless of the industry or circumstances in which it occurs a college student s activity of studying at length for an exam can be considered a grind the term also applies to anyone whose job may be monotonous or simple in nature yet requires a large amount of effort to complete in that case since the large effort yields minimal returns the position may be considered a grind finally if a trader has a particular trade that must be done it is sometimes referred to as having an axe to grind | |
what is the gross debt service ratio | the gross debt service gds ratio is a debt service measure that financial lenders use to assess the proportion of housing debt that a borrower is paying in comparison to their income the gross debt service ratio is one of several metrics used to qualify borrowers for a mortgage loan and determine the amount of principal offered the gross debt service ratio may also be referred to as the housing expense ratio or the front end ratio generally borrowers should strive for a gross debt service ratio of 28 or less 1 | |
how the gds ratio works | the gross debt service ratio is typically a comprehensive measure of all of a borrower s monthly housing expenses it may also be calculated on an annual basis the borrower s current monthly mortgage payment is the primary expense other expenses may also include monthly property tax payments monthly home insurance payments and utility bills 2total monthly expenses are divided by total monthly income to calculate the ratio as a rule of thumb lenders typically require a gross debt service ratio of 28 or less 1 lenders also use the gds ratio to determine how much the borrower can afford to borrow using an online mortgage calculator to estimate homebuying costs can give you an idea of what you might be able to afford gross debt service ratio formula and calculationthe formula that s used to calculate the gross debt service ratio is fairly straightforward it looks like this gross debt service ratio principal interest taxes utilities gross annual incomeutilities can include any amounts paid toward electric water or natural gas service if you re planning to purchase a property you may be able to contact the electric company water company and gas company to get information about average utility costs you can also look up information about local property taxes to estimate what you might pay for those example of gross debt service ratioas an example consider two married law students who have a monthly mortgage payment of 1 000 and pay annual property taxes of 3 000 with a gross family income of 45 000 this would result in a gds ratio of 33 based on the benchmark of 28 this couple appears to be carrying an unacceptable amount of debt and are not likely to be approved for a mortgage loan given their current situation if you re applying for a mortgage as a self employed person the lender may consider the average of your last two years worth of income versus a single year of earnings | |
how is gds ratio used | the gds ratio helps lenders determine whether a borrower can afford a mortgage extending a mortgage loan involves a certain amount of risk to the lender so they want reassurance beforehand that you ll be likely to pay back what you borrow the gds ratio is a way to measure your ability to pay based on estimated housing costs and your household income if a lender determines that your gds is above acceptable limits you have some options the first is finding ways to increase your income for example you may be able to do that by asking for a raise at work taking on more hours starting a second job or starting a side hustle increasing the size of your down payment could also help you qualify for a mortgage if you re financing a smaller loan amount if increasing income or the size of your down payment isn t enough to fall within a lender s acceptable gds limits then you may need to revise your budget to look for a less expensive home special considerationsthe gds ratio is only one component involved in the underwriting process for a loan a borrower s total debt service ratio and credit report are also important components as well a borrower s credit report is obtained from a hard inquiry and provides the lender with the borrower s credit score and credit history many lenders require a borrower to meet specific credit score requirements for loan consideration a borrower s total debt service ratio is also a factor in the qualification process for approval the total debt service ratio is similar to the gross debt service ratio however it includes all of a borrower s debt and is not just focused on housing the total debt service ratio sums up all of a borrower s monthly debt and divides it by their monthly income to calculate a ratio 3 this may also be referred to as the bottom ratio generally lenders require a total debt service ratio of approximately 36 or less for loan approval | |
what is the gross debt service ratio | the gross debt service ratio is a measure of housing costs versus a borrower s gross income specifically this ratio tells lenders how much of a homebuyer s gross income goes toward housing costs the gds ratio helps determine how much home a buyer can afford when qualifying them for a mortgage loan | |
how do you calculate the gross debt service ratio | to calculate the gross debt service ratio you d divide total housing costs by gross income housing costs include principal interest taxes and utility costs gross income represents what you make before taxes and other deductions are taken out | |
what is a good gross debt service ratio for a mortgage | generally a good gross debt service ratio for a mortgage is 28 whether it s possible to qualify for a home loan with a gds ratio above that amount may depend on the lender and its specific underwriting criteria | |
what are gross dividends | similar in concept to gross income gross dividends are the sum total of all dividends received by an investor for tax purposes gross dividends include all ordinary dividends that are paid plus capital gains distributions and nontaxable distributions received by the taxpayer during the year before taxes fees and expenses are deducted gross dividends can be contrasted with net dividends understanding gross dividendsmost of the time gross dividends paid to american investors are reported on irs form 1099 div ordinary dividends are reported in box 1a 2 while the other types of dividend income are listed elsewhere all dividends are considered ordinary unless they are specifically classified as qualified dividends box 1b is designated for reporting qualified dividends which shows the portion of the amount in box 1a that may be eligible for reduced capital gains rates box 3 shows non dividend distributions 2a 1099 div is required to be sent to anyone who has received dividends including capital gain dividends and exempt interest dividends and other distributions on stock of ten dollars or more or if funds were withheld to pay foreign tax on dividends and other distributions on stock over a given year 3 not all dividend income reported on the 1099 div is reported on schedule b 4in many countries income from dividends is treated at a more favorable tax rate than ordinary income investors may look to dividend paying stocks in order to take advantage of potentially more favorable tax conditions the amount of tax owed on dividends depends on overall income and whether the dividends are qualified or nonqualified example of a gross dividend versus a net dividendas an example let s say that company abcxyz decides to issue a dividend of 1 20 to its shareholders this means for each share owned the company pays 1 20 in dividends if a shareholder owned 1 000 shares they would receive an annual payout of 1 200 in gross dividends companies in the u s typically pay quarterly dividends while non u s companies generally pay annual or semi annual dividends if the dividend was considered an ordinary one and taxed at a rate of 35 with another 2 going toward fees and expenses the net dividend would actually be 756 if the dividend was a qualified one instead with a reduced tax rate of 15 the net dividend would actually be 996 | |
what is gross domestic income gdi | gross domestic income gdi is a measure of a nation s economic activity based on money earned for all goods and services produced during a specific period in theory gdi should be identical to gross domestic product gdp a more commonly used measure of a country s economic activity however different data sources used in each calculation lead to somewhat different results generally gdp tends to be the more reliable metric as it is based on fresher and more expansive information understanding gross domestic income gdi gdi is the total income that all sectors of an economy generate including wages profits and taxes it is a lesser known statistic than gdp which is used by the federal reserve bank to measure total economic activity in the united states one of the core concepts in the field of macroeconomics is that income equals spending this means that the money spent on purchases should theoretically equal money generated from production formula and calculation of gross domestic incomenote the differences in formula for gdi compared to the formula for gdp wages encompass the total compensation to employees for services rendered profits also called net operating surplus are the surpluses of incorporated and unincorporated businesses statistical adjustments may include corporate income tax dividends and undistributed profits the most significant component of gdi is wages and salaries historically roughly 50 of all national income goes to workers in the first quarter of 2024 u s gdi clocked in at roughly 27 6 trillion with 14 7 trillion taking the form of employee compensation 1another large component of gdi is the net operating surplus from private enterprises in the first quarter of 2024 about 6 5 trillion of the 27 6 trillion in gdi was attributed to that category 1gdi vs gdpaccording to the bureau of economic analysis bea of the u s department of commerce gdi and gdp are conceptually equivalent in terms of national economic accounting with minor differences attributed to statistical discrepancies the market value of goods and services consumed often differs from the amount of income earned to produce them due to sampling errors coverage differences and timing differences 2but while the difference between gdi and gdp is usually minimal they can sometimes vary up to a full percentage point for some quarters the gap also varies over different periods of time gdi differs from gdp which values production by the amount of output that is purchased in that it measures total economic activity based on the income paid to generate that output in other words gdi aims to measure what the economy takes in like wages profits and taxes while gdp seeks to measure what the economy produces goods services technology gdi calculates the income that was paid to generate gdp so an economy at equilibrium will see gdi equal to gdp some economists have argued that gdi might be a more accurate gauge of the economy the reason is that more advanced estimates of gdi are closer to the final estimates of both calculations research from federal reserve economist jeremy nalewalk showed that early estimates of gdi captured the great recession of 2007 2009 better than gdp suggesting that policymakers would have been better prepared if gdi was the main indicator used over time according to the bea gdi and gdp provide a similar overall picture of economic activity for annual data the correlation between gdi and gdp is 0 97 according to bea calculations 2gross domestic income analyticsgdi figures have various analytical uses | |
what is the difference between gdi and gni | gross domestic income gdi and gross national income gni are two closely related concepts the former counts generated domestically hence the name the latter counts all income generated by a nation s residents including from income sources abroad | |
which country has highest gni | the united states has the highest gni per latest data available from the world bank the country recorded a gni of 25 59 trillion in 2022 china which came in second recorded a gni of 18 13 trillion 3 | |
what is gni per capita in u s | according to most recent data published by the world bank gni per capita in the u s was 76 770 in 2022 the country ranked eighth across the world 4the bottom linegross domestic income gdi measures a country s economic activity based on all income generated domestically in a certain window it s a less commonly used metric compared to gross domestic product gdp which measures a country s output gdi and gdp are typically very close in value with slight variations attributable to differences in the data from which they draw | |
what is gross domestic product gdp | gross domestic product gdp is the total monetary or market value of all the finished goods and services produced within a country s borders in a specific time period as a broad measure of overall domestic production it functions as a comprehensive scorecard of a given country s economic health though gdp is typically calculated on an annual basis it is sometimes calculated on a quarterly basis as well in the u s for example the government releases an annualized gdp estimate for each fiscal quarter and also for the calendar year the individual data sets included in this report are given in real terms so the data is adjusted for price changes and is therefore net of inflation investopedia zoe hansenunderstanding gross domestic product gdp the calculation of a country s gdp encompasses all private and public consumption government outlays investments additions to private inventories paid in construction costs and the foreign balance of trade exports are added to the value and imports are subtracted 1of all the components that make up a country s gdp the foreign balance of trade is especially important the gdp of a country tends to increase when the total value of goods and services that domestic producers sell to foreign countries exceeds the total value of foreign goods and services that domestic consumers buy when this situation occurs a country is said to have a trade surplus if the opposite situation occurs that is if the amount that domestic consumers spend on foreign products is greater than the total sum of what domestic producers are able to sell to foreign consumers it is called a trade deficit in this situation the gdp of a country tends to decrease gdp can be computed on a nominal basis or a real basis the latter accounting for inflation overall real gdp is a better method for expressing long term national economic performance since it uses constant dollars 2let s say one country had a nominal gdp of 100 billion in 2012 by 2022 its nominal gdp grew to 150 billion prices also rose by 100 over the same period in this example if you looked solely at its nominal gdp the country s economy appears to be performing well however the real gdp expressed in 2012 dollars would only be 75 billion revealing that an overall decline in real economic performance actually occurred during this time | |
what does gdp tell you | a country s gdp represents the final market value of all the products and services that a country produces in a single year another way to measure gdp is as the sum of four factors consumer spending government spending net exports and total investment in the united states gdp is calculated every three months by the bureau of economic analysis the bea makes its estimate based on price estimates survey data and other information collected by other agencies such as the census bureau federal reserve department of the treasury and the bureau of labor statistics 3types of gdpgdp can be reported in several ways each of which provides slightly different information nominal gdp is an assessment of economic production in an economy that includes current prices in its calculation in other words it doesn t strip out inflation or the pace of rising prices which can inflate the growth figure all goods and services counted in nominal gdp are valued at the prices that those goods and services are actually sold for in that year nominal gdp is evaluated in either the local currency or u s dollars at currency market exchange rates to compare countries gdps in purely financial terms nominal gdp is used when comparing different quarters of output within the same year when comparing the gdp of two or more years real gdp is used this is because in effect the removal of the influence of inflation allows the comparison of the different years to focus solely on volume real gdp is an inflation adjusted measure that reflects the number of goods and services produced by an economy in a given year with prices held constant from year to year to separate out the impact of inflation or deflation from the trend in output over time since gdp is based on the monetary value of goods and services it is subject to inflation rising prices tend to increase a country s gdp but this does not necessarily reflect any change in the quantity or quality of goods and services produced thus by looking just at an economy s nominal gdp it can be difficult to tell whether the figure has risen because of a real expansion in production or simply because prices rose economists use a process that adjusts for inflation to arrive at an economy s real gdp by adjusting the output in any given year for the price levels that prevailed in a reference year called the base year economists can adjust for inflation s impact this way it is possible to compare a country s gdp from one year to another and see if there is any real growth real gdp is calculated using a gdp price deflator which is the difference in prices between the current year and the base year for example if prices rose by 5 since the base year then the deflator would be 1 05 nominal gdp is divided by this deflator yielding real gdp nominal gdp is usually higher than real gdp because inflation is typically a positive number 2real gdp accounts for changes in market value and thus narrows the difference between output figures from year to year if there is a large discrepancy between a nation s real gdp and nominal gdp this may be an indicator of significant inflation or deflation in its economy gdp per capita is a measurement of the gdp per person in a country s population it indicates that the amount of output or income per person in an economy can indicate average productivity or average living standards gdp per capita can be stated in nominal real inflation adjusted or purchasing power parity ppp terms 4at a basic interpretation per capita gdp shows how much economic production value can be attributed to each individual citizen this also translates to a measure of overall national wealth since gdp market value per person also readily serves as a prosperity measure per capita gdp is often analyzed alongside more traditional measures of gdp economists use this metric for insight into their own country s domestic productivity and the productivity of other countries per capita gdp considers both a country s gdp and its population therefore it can be important to understand how each factor contributes to the overall result and is affecting per capita gdp growth if a country s per capita gdp is growing with a stable population level for example it could be the result of technological progressions that are producing more with the same population level some countries may have a high per capita gdp but a small population which usually means they have built up a self sufficient economy based on an abundance of special resources gdp growth ratethe gdp growth rate compares the year over year or quarterly change in a country s economic output to measure how fast an economy is growing usually expressed as a percentage rate this measure is popular for economic policymakers because gdp growth is thought to be closely connected to key policy targets such as inflation and unemployment rates 5if gdp growth rates accelerate it may be a signal that the economy is overheating and the central bank may seek to raise interest rates conversely central banks see a shrinking or negative gdp growth rate i e a recession as a signal that rates should be lowered and that stimulus may be necessary while not directly a measure of gdp economists look at ppp to see how one country s gdp measures up in international dollars using a method that adjusts for differences in local prices and costs of living to make cross country comparisons of real output real income and living standards 6the annual rate of increase for u s gdp in the first quarter of 2024 u s gdp recorded a 3 4 increase during the fourth quarter of 2023 7gdp formulagdp can be determined via three primary methods all three methods should yield the same figure when correctly calculated these three approaches are often termed the expenditure approach the output or production approach and the income approach the expenditure approach also known as the spending approach calculates spending by the different groups that participate in the economy the u s gdp is primarily measured based on the expenditure approach this approach can be calculated using the following formula gdp c g i nx where c consumption g government spending i investment nx net exports begin aligned text gdp text c text g text i text nx textbf where text c text consumption text g text government spending text i text investment text nx text net exports end aligned gdp c g i nxwhere c consumptiong government spendingi investmentnx net exports all of these activities contribute to the gdp of a country consumption refers to private consumption expenditures or consumer spending consumers spend money to acquire goods and services such as groceries and haircuts 8 consumer spending is the biggest component of gdp accounting for more than two thirds of the u s gdp 9consumer confidence therefore has a very significant bearing on economic growth a high confidence level indicates that consumers are willing to spend while a low confidence level reflects uncertainty about the future and an unwillingness to spend government spending represents government consumption expenditure and gross investment governments spend money on equipment infrastructure and payroll government spending may become more important relative to other components of a country s gdp when consumer spending and business investment both decline sharply this may occur in the wake of a recession for example investment refers to private domestic investment or capital expenditures businesses spend money to invest in their business activities for example a business may buy machinery business investment is a critical component of gdp since it increases the productive capacity of an economy and boosts employment levels the net exports formula subtracts total exports from total imports nx exports imports the goods and services that an economy makes that are exported to other countries less the imports that are purchased by domestic consumers represent a country s net exports all expenditures by companies located in a given country even if they are foreign companies are included in this calculation 8the production approach is essentially the reverse of the expenditure approach instead of measuring the input costs that contribute to economic activity the production approach estimates the total value of economic output and deducts the cost of intermediate goods that are consumed in the process like those of materials and services whereas the expenditure approach projects forward from costs the production approach looks backward from the vantage point of a state of completed economic activity 10the income approach represents a kind of middle ground between the two other approaches to calculating gdp the income approach calculates the income earned by all the factors of production in an economy including the wages paid to labor the rent earned by land the return on capital in the form of interest and corporate profits the income approach factors in some adjustments for those items that are not considered payments made to factors of production for one there are some taxes such as sales taxes and property taxes that are classified as indirect business taxes in addition depreciation which is a reserve that businesses set aside to account for the replacement of equipment that tends to wear down with use is also added to the national income all of this together constitutes a nation s income 11gdp vs gnp vs gnialthough gdp is a widely used metric there are other ways of measuring the economic growth of a country while gdp measures the economic activity within the physical borders of a country whether the producers are native to that country or foreign owned entities gross national product gnp is a measurement of the overall production of people or corporations native to a country including those based abroad gnp excludes domestic production by foreigners 12gross national income gni is another measure of economic growth it is the sum of all income earned by citizens or nationals of a country regardless of whether the underlying economic activity takes place domestically or abroad 13 the relationship between gnp and gni is similar to the relationship between the production output approach and the income approach used to calculate gdp gnp uses the production approach while gni uses the income approach with gni the income of a country is calculated as its domestic income plus its indirect business taxes and depreciation as well as its net foreign factor income the figure for net foreign factor income is calculated by subtracting all payments made to foreign companies and individuals from all payments made to domestic businesses in an increasingly global economy gni has been put forward as a potentially better metric for overall economic health than gdp because certain countries have most of their income withdrawn abroad by foreign corporations and individuals their gdp figure is much higher than the figure that represents their gni for example in 2019 luxembourg had a significant difference between its gdp and gni mainly due to large payments made to the rest of the world via foreign corporations that did business in luxembourg attracted by the tiny nation s favorable tax laws 14 on the contrary gni and gdp in the u s do not differ substantially u s gdp was 28 25 trillion as of q1 2024 while its gni was about 25 98 trillion at the end of 2022 1516adjustments to gdpa number of adjustments can be made to a country s gdp to improve the usefulness of this figure for economists a country s gdp reveals the size of the economy but provides little information about the standard of living in that country part of the reason for this is that population size and cost of living are not consistent around the world economists can use tax to gdp to get a better understanding of how a nation s tax revenue impacts its economy and its people for example comparing the nominal gdp of china to the nominal gdp of ireland would not provide much meaningful information about the realities of living in those countries because china has approximately 300 times the population of ireland 17to help solve this problem statisticians sometimes compare gdp per capita between countries gdp per capita is calculated by dividing a country s total gdp by its population and this figure is frequently cited to assess the nation s standard of living even so the measure is still imperfect suppose china has a gdp per capita of 1 500 while ireland has a gdp per capita of 15 000 this doesn t necessarily mean that the average irish person is 10 times better off than the average chinese person gdp per capita doesn t account for how expensive it is to live in a country ppp attempts to solve this problem by comparing how many goods and services an exchange rate adjusted unit of money can purchase in different countries comparing the price of an item or basket of items in two countries after adjusting for the exchange rate between the two in effect real per capita gdp adjusted for purchasing power parity is a heavily refined statistic to measure true income which is an important element of well being an individual in ireland might make 100 000 a year while an individual in china might make 50 000 a year in nominal terms the worker in ireland is better off but if a year s worth of food clothing and other items costs three times as much in ireland as in china however then the worker in china has a higher real income | |
how to use gdp data | most nations release gdp data every month and quarter in the u s the bureau of economic analysis bea publishes an advance release of quarterly gdp four weeks after the quarter ends and a final release three months after the quarter ends the bea releases are exhaustive and contain a wealth of detail enabling economists and investors to obtain information and insights on various aspects of the economy 18gdp s market impact is generally limited since it is backward looking and a substantial amount of time has already elapsed between the quarter end and gdp data release however gdp data can have an impact on markets if the actual numbers differ considerably from expectations because gdp provides a direct indication of the health and growth of the economy businesses can use gdp as a guide to their business strategy government entities such as the fed in the u s use the growth rate and other gdp stats as part of their decision process in determining what type of monetary policies to implement if the growth rate is slowing they might implement an expansionary monetary policy to try to boost the economy if the growth rate is robust they might use monetary policy to slow things down to try to ward off inflation real gdp is the indicator that says the most about the health of the economy it is widely followed and discussed by economists analysts investors and policymakers the advance release of the latest data will almost always move markets although that impact can be limited as noted above gdp and investinginvestors watch gdp since it provides a framework for decision making the corporate profits and inventory data in the gdp report are a great resource for equity investors as both categories show total growth during the period corporate profits data also displays pre tax profits operating cash flows and breakdowns for all major sectors of the economy comparing the gdp growth rates of different countries can play a part in asset allocation aiding decisions about whether to invest in fast growing economies abroad and if so which ones one interesting metric that investors can use to get a sense of the valuation of an equity market is the ratio of total market capitalization to gdp expressed as a percentage the closest equivalent to this in terms of stock valuation is a company s market cap to total sales or revenues which in per share terms is the well known price to sales ratio just as stocks in different sectors trade at widely divergent price to sales ratios different nations trade at market cap to gdp ratios that are all over the map for example according to the world bank the u s had a market cap to gdp ratio of 197 4 for 2020 while china had a ratio of just over 83 6 and hong kong had a ratio of 1 777 2 19however the utility of this ratio lies in comparing it to historical norms for a particular nation as an example the u s had a market cap to gdp ratio of 141 6 at the end of 2006 which dropped to 78 5 by the end of 2008 19 in retrospect these represented zones of substantial overvaluation and undervaluation respectively for u s equities the biggest downside of this data is its lack of timeliness investors only get one update per quarter and revisions can be large enough to significantly alter the percentage change in gdp history of gdpthe concept of gdp was first proposed in 1937 in a report to the u s congress in response to the great depression conceived of and presented by an economist at the national bureau of economic research nber simon kuznets 20at the time the preeminent system of measurement was gnp after the bretton woods conference in 1944 gdp was widely adopted as the standard means for measuring national economies however the u s continued to use gnp as its official measure of economic welfare until 1991 after which it switched to gdp 2122beginning in the 1950s however some economists and policymakers began to question gdp some observed for example a tendency to accept gdp as an absolute indicator of a nation s failure or success despite its failure to account for health happiness in equality and other constituent factors of public welfare in other words these critics drew attention to a distinction between economic progress and social progress most authorities like arthur okun an economist for president john f kennedy s council of economic advisers held firm to the belief that gdp is an absolute indicator of economic success claiming that for every increase in gdp there would be a corresponding drop in unemployment 23criticisms of gdpthere are of course drawbacks to using gdp as an indicator in addition to the lack of timeliness some criticisms of gdp as a measure are global sources for country gdp datathe world bank hosts one of the most reliable web based databases it has one of the best and most comprehensive lists of countries for which it tracks gdp data the international money fund imf also provides gdp data through its multiple databases such as world economic outlook and international financial statistics 2627another highly reliable source of gdp data is the organization for economic cooperation and development oecd the oecd not only provides historical data but also forecasts gdp growth the disadvantage of using the oecd database is that it tracks only oecd member countries and a few nonmember countries 28in the u s the fed collects data from multiple sources including a country s statistical agencies and the world bank the only drawback to using a fed database is a lack of updating in gdp data and an absence of data for certain countries 29the bea is a division of the u s department of commerce it issues its own analysis document with each gdp release which is a great investor tool for analyzing figures and trends and reading highlights of the very lengthy full release 18 | |
what is a simple definition of gdp | gross domestic product is a measurement that seeks to capture a country s economic output countries with larger gdps will have a greater amount of goods and services generated within them and will generally have a higher standard of living for this reason many citizens and political leaders see gdp growth as an important measure of national success often referring to gdp growth and economic growth interchangeably due to various limitations however many economists have argued that gdp should not be used as a proxy for overall economic success much less the success of a society | |
which country has the highest gdp | the countries with the two highest gdps in the world are the united states and china however their ranking differs depending on how you measure gdp using nominal gdp the united states comes in first with a gdp of 25 44 trillion as of 2022 compared to 17 96 trillion in china 30many economists argue that it is more accurate to use purchasing power parity gdp as a measure of national wealth by this metric china is the world leader with a 2022 ppp gdp of 31 77 trillion followed by 25 44 trillion in the united states 31 | |
is a high gdp good | most people perceive a higher gdp to be a good thing because it is associated with greater economic opportunities and an improved standard of material well being it is possible however for a country to have a high gdp and still be an unattractive place to live so it is important to also consider other measurements for example a country could have a high gdp and a low per capita gdp suggesting that significant wealth exists but is concentrated in the hands of very few people one way to address this is to look at gdp alongside another measure of economic development such as the human development index hdi 6the bottom linein their seminal textbook economics paul samuelson and william nordhaus neatly sum up the importance of the national accounts and gdp they liken the ability of gdp to give an overall picture of the state of the economy to that of a satellite in space that can survey the weather across an entire continent 32gdp enables policymakers and central banks to judge whether the economy is contracting or expanding whether it needs a boost or restraint and if a threat such as a recession or inflation looms on the horizon like any measure gdp has its imperfections in recent decades governments have created various nuanced modifications in attempts to increase gdp accuracy and specificity means of calculating gdp have also evolved continually since its conception to keep up with evolving measurements of industry activity and the generation and consumption of new emerging forms of intangible assets | |
what are gross earnings | gross earnings is the total amount of income earned over a period of time by an individual household or a company for individuals and households gross earnings is the income earned before the deduction of taxes or adjustments in the corporate world it s an accounting convention that refers to a public company s gross profit or the amount left from total revenues over a specified time period once the cost of goods sold cogs is deducted understanding gross earningsgross earnings are also commonly referred to in the financial sector as gross profit or gross income as noted above the term has different meanings depending on how it is used | |
when referring to personal or household income gross earnings are generally the first line of an employee s pay stub this is followed by income and payroll taxes and other deductions such as employer sponsored health insurance life insurance and retirement benefits once these deductions are accounted for the employer lists the employee s net earnings or income on the bottom of the paystub and on their paycheck | things work a little differently for businesses when it comes to the business world the term refers to the amount of money left from a public company s total revenue once the cogs is deducted also referred to as gross profit it is the income a company earns before any adjustments and other deductions such as taxes these other costs such as administrative expenses are not included and fall under a company s operating income gross earnings on business income statementsa company s gross earnings are reported periodically on its income statement the first line of the income statement reports a company s total sales and revenues for a given time period while the cogs and gross earnings often appear on the second and third lines of many income statements the difference between revenue and cogs is a company s gross earnings the cogs includes costs directly related to the company s product such as once a business calculates its gross earnings it may subtract the rest of its business expenses including costs such as utilities loan repayments office supplies contractor fees and many other expenses indirect costs are not included in a company s cost of goods sold gross earnings vs adjusted gross income agi for tax purposes the internal revenue service irs distinguishes gross earnings and adjusted gross income agi gross income includes all of the money you earn through the year including wages income from a business alimony payments rental income interest and a few other types of payments the irs allows taxpayers to take a select number of above the line deductions from gross income and these include certain expenses incurred by educators eligible moving expenses contributions to ira accounts as well as a few others the difference between your gross income and these deductions is your agi | |
when you complete your income tax return you subtract a standard deduction or a list of itemized deductions from your agi and the difference yields your taxable income the amount upon which the irs levies an income tax | examples of gross earningsto understand individual gross earnings consider mr z who earned a total of 50 000 for the recently completed fiscal year he also paid 10 000 in income tax retirement contributions and social security payments in this case his gross earnings are 50 000 and his net earnings are 40 000 but how does it work for businesses here s a simple example let s say company x has sales of 2 million cost of goods sold of 500 000 and expenses related to the sale of 300 000 the company s gross income is 1 5 million after the other deductions it is left with 1 2 million in net income | |
what is the difference between gross income and net income | for a business gross income is the difference between revenues and cost of goods sold whereas net income is the difference between gross income and all other business costs such as taxes | |
is total gross income your salary | yes total gross income is your salary it is the amount of money you have before taxes and other adjustments are deducted for example if you had an annual salary from your employer of 100 000 that would be your gross income after taxes and other adjustments you take home 65 000 which is your net income | |
does gross profit include tax | no gross profit does not include tax debt charges or any other expenses other than direct costs the bottom linegross earnings is how much income is generated by an individual before taxes and for a business it is the amount of income after costs of goods sold cogs are deducted from revenues gross income plays various roles in personal finance and business when extending credit lenders analyze gross income as a factor in the borrower s ability to pay back the loan gross margin can be calculated from gross earnings which is a profitability measure for evaluating a company | |
what are gross earnings | gross earnings is the total amount of income earned over a period of time by an individual household or a company for individuals and households gross earnings is the income earned before the deduction of taxes or adjustments in the corporate world it s an accounting convention that refers to a public company s gross profit or the amount left from total revenues over a specified time period once the cost of goods sold cogs is deducted understanding gross earningsgross earnings are also commonly referred to in the financial sector as gross profit or gross income as noted above the term has different meanings depending on how it is used | |
when referring to personal or household income gross earnings are generally the first line of an employee s pay stub this is followed by income and payroll taxes and other deductions such as employer sponsored health insurance life insurance and retirement benefits once these deductions are accounted for the employer lists the employee s net earnings or income on the bottom of the paystub and on their paycheck | things work a little differently for businesses when it comes to the business world the term refers to the amount of money left from a public company s total revenue once the cogs is deducted also referred to as gross profit it is the income a company earns before any adjustments and other deductions such as taxes these other costs such as administrative expenses are not included and fall under a company s operating income gross earnings on business income statementsa company s gross earnings are reported periodically on its income statement the first line of the income statement reports a company s total sales and revenues for a given time period while the cogs and gross earnings often appear on the second and third lines of many income statements the difference between revenue and cogs is a company s gross earnings the cogs includes costs directly related to the company s product such as once a business calculates its gross earnings it may subtract the rest of its business expenses including costs such as utilities loan repayments office supplies contractor fees and many other expenses indirect costs are not included in a company s cost of goods sold gross earnings vs adjusted gross income agi for tax purposes the internal revenue service irs distinguishes gross earnings and adjusted gross income agi gross income includes all of the money you earn through the year including wages income from a business alimony payments rental income interest and a few other types of payments the irs allows taxpayers to take a select number of above the line deductions from gross income and these include certain expenses incurred by educators eligible moving expenses contributions to ira accounts as well as a few others the difference between your gross income and these deductions is your agi | |
when you complete your income tax return you subtract a standard deduction or a list of itemized deductions from your agi and the difference yields your taxable income the amount upon which the irs levies an income tax | examples of gross earningsto understand individual gross earnings consider mr z who earned a total of 50 000 for the recently completed fiscal year he also paid 10 000 in income tax retirement contributions and social security payments in this case his gross earnings are 50 000 and his net earnings are 40 000 but how does it work for businesses here s a simple example let s say company x has sales of 2 million cost of goods sold of 500 000 and expenses related to the sale of 300 000 the company s gross income is 1 5 million after the other deductions it is left with 1 2 million in net income | |
what is the difference between gross income and net income | for a business gross income is the difference between revenues and cost of goods sold whereas net income is the difference between gross income and all other business costs such as taxes | |
is total gross income your salary | yes total gross income is your salary it is the amount of money you have before taxes and other adjustments are deducted for example if you had an annual salary from your employer of 100 000 that would be your gross income after taxes and other adjustments you take home 65 000 which is your net income | |
does gross profit include tax | no gross profit does not include tax debt charges or any other expenses other than direct costs the bottom linegross earnings is how much income is generated by an individual before taxes and for a business it is the amount of income after costs of goods sold cogs are deducted from revenues gross income plays various roles in personal finance and business when extending credit lenders analyze gross income as a factor in the borrower s ability to pay back the loan gross margin can be calculated from gross earnings which is a profitability measure for evaluating a company | |
what is the gross expense ratio ger | the gross expense ratio ger is the total percentage of a mutual fund s assets that are devoted to running the fund the gross expense ratio includes any fee waiver or expense reimbursement agreements that may be in effect however it does not include any sales or brokerage commissions that are not charged to the fund directly but which would be included in the net expense ratio sometimes referred to as the audited gross expense ratio data providers such as morningstar pull the annual gross expense ratio from the fund s audited annual report annual report expense ratios reflect the actual fees charged during a particular fiscal year while prospectus expense ratios reflect material changes to the expense structure for the current period | |
how the gross expense ratio ger works | the gross expense ratio is important because it informs the investors about the total amount of fees charged for managing the fund these fees matter because they affect the net return produced by the fund and received by the investors if these fees are high the fund s net return after fees is negatively affected in a material way the discussion around mutual funds ger has grown with the rise of exchange traded funds etfs which are more competitive in this regard the gross expense ratio includes all fees incurred by the fund including management fees 12b 1 fees administrative costs and operating expenses investors should compare the gross expense ratio to a fund s net expense ratio and understand the differences involved in some cases a fund may have agreements in place for waiving reimbursing or recouping some of the fund s fees this is often the case for new funds an investment company and its fund managers may agree to waive certain fees following the launch of a new fund to keep the expense ratio lower for investors the net expense ratio represents the fees charged to the fund after any waivers reimbursements and recoupments have been made these fee reductions are typically for a specified time frame after which the fund may incur all full costs for example if a fund has a net expense ratio of 2 and a gross expense ratio of 3 it is readily apparent that 1 of the fund s assets were used to waive fees reimburse expenses or provide other rebates not included in the net expense ratio this is important because such rebates and reimbursements may or may not continue in the future prudent investors will want to examine both expense ratios and compare them to like funds before investing examples of gross expense ratiosin general passively managed funds such as index funds will typically have lower expense ratios than actively managed funds gross expense ratios usually range from 0 to 3 below are two examples the ab large cap growth fund is an actively managed fund with a gross expense ratio of 0 65 and a net expense ratio of 0 64 for the class a shares as of september 2020 the fund currently has a fee waiver and expense reimbursement of 0 01 management fees for the fund are 0 51 1 the fund invests primarily in large cap u s stocks with high growth potential it typically includes 50 to 70 holdings the t rowe price equity index 500 fund is a passive fund it seeks to replicate the s p 500 index as of september 2020 it has some contractual fee waivers in place its gross expense ratio is 0 19 and its net expense ratio is also 0 19 | |
what is gross exposure | gross exposure refers to the absolute level of a fund s investments it takes into account the value of both a fund s long positions and short positions and can be expressed either in dollar or percentage terms gross exposure is a measure that indicates total exposure to financial markets thus providing an insight into the amount at risk that investors are taking on the higher the gross exposure the bigger the potential loss or gain understanding gross exposuregross exposure is an especially relevant metric in the context of hedge funds institutional investors and other traders who can short and long assets and use leverage to amplify returns these types of investors are sometimes more sophisticated and have greater resources than regular long only investors as an example hedge fund a has 200 million in capital it deploys 150 million in long positions and 50 million in short positions the fund s gross exposure is thus 150 million 50 million 200 million since gross exposure equals capital in this case gross exposure as a percentage of capital is 100 if gross exposure exceeds 100 it means the fund is using leverage in other words it is borrowing money to amplify returns alternatively gross exposure below 100 indicates a portion of the portfolio is invested in cash gross exposure vs net exposurethe exposure of an investment fund can also be measured in net terms net exposure equals the value of long positions minus the value of short positions for example the net exposure of hedge fund a is 100 million this is calculated by subtracting 50 million the amount of capital tied up in short positions from the 150 million of long holdings if net exposure is the same as gross exposure it means the fund only has long positions on the other hand if net exposure is zero it means the percentage invested in long positions equals investment in short positions also known as a market neutral strategy a fund has a net long exposure if the percentage amount invested in long positions exceeds the percentage amount invested in short position likewise it has a net short position if short positions exceed long positions assume hedge fund b also has 200 million in capital but uses a significant amount of leverage as a result it has 350 million in long positions and 150 million in short positions the gross exposure in this case is thus 500 million i e 350 million 150 million while the net exposure is 200 million i e 350 150 million gross exposure as a percentage of capital for hedge fund b 500 million 200 million 250 fund b s higher gross exposure means that it has a greater amount at stake in the markets than a fund b s use of leverage will magnify losses as well as profits special considerationsgross exposure is generally used as the basis for calculating a fund s management fees since it takes into account total exposure of investment decisions on both the long and short side portfolio managers combined decisions will have direct consequences on the performance of a fund and thus distributions to its investors an additional method of calculating exposure is a beta adjusted exposure also used for investment funds or portfolios this is computed by taking the weighted average exposure of a portfolio of investments where the weight is defined as the beta of each individual security | |
what is gross income | gross income for an individual also known as gross pay when it s on a paycheck is an individual s total earnings before taxes or other deductions this includes income from all sources not just employment and is not limited to income received in cash it also includes property or services received for companies gross income is interchangeable with gross margin or gross profit a company s gross income found on the income statement is the revenue from all sources minus the firm s cost of goods sold cogs investopedia tara anandunderstanding gross incomethere are different components to gross income in respects to an individual and a company an individual will easily be able to determine their gross income by consulting a recent pay stub or calculating their hours worked and wage alternatively gross income of a company may require a bit more computation an individual s gross income is used by lenders or landlords to determine whether that person is a worthy borrower or renter when filing federal and state income taxes gross income is the starting point before subtracting deductions to determine the amount of tax owed a company calculates gross income to understand how the product specific aspect of its business performed by using gross income and limiting what expenses are included in the analysis a company can better analyze what is driving success or failure for example if a company is interested in knowing how a specific product line is performing it does not want to see the company s rent expense included in the performance as that is an unrelated administrative expense | |
how to calculate gross income | the approach to determining gross income for an individual is slightly different than the approach for a business although both calculations are similar each type of entity uses different classifications of income and expenses for individuals the gross income metric used on the income tax return includes not just wages or salary but also other forms of income such as tips capital gains rental payments dividends alimony pension and interest after subtracting above the line tax deductions the result is adjusted gross income agi 1there are income sources that are not included in gross income for tax purposes but still may be included when calculating gross income for a lender or creditor common nontaxable income sources are certain social security benefits life insurance payouts some inheritances or gifts and state or municipal bond interest 23for non tax purposes individuals can usually use their total wages as gross income when applying for a loan individual gross income will equal the amount of money the individual earns prior to any taxes being deducted or any expenses having been paid some lenders may require the use of agi to standardize how gross income is calculated gross income is a line item that is sometimes included in a company s income statement if not displayed it s calculated as gross revenue minus cogs gross income gross revenue cogswhere cogs cost of goods sold begin aligned text gross income text gross revenue text cogs textbf where text cogs text cost of goods sold end aligned gross income gross revenue cogswhere cogs cost of goods sold gross income is sometimes referred to as gross margin there s also gross profit margin which is more correctly defined as a percentage and is used as a profitability metric the gross income for a company reveals how much money it has made on its products or services after subtracting the direct costs to make the product or provide the service business gross income can be calculated on a company wide basis or product specific basis as long as the company is using a chart of accounts that allows tracking of revenue by product and cost by product a company can see how much profit each product is making while the gross income metric factors in the direct cost of producing or providing goods and services it does not include other costs related to selling activities administration taxes and other costs related to running the overall business gross income vs net incomegross income and net income are two terms commonly used by businesses to describe profit both terms can also be used to explain how much money a household is making or taking home for an individual net income is the total residual amount of income remaining after all personal expenses have been paid for personal net income is calculated as the total amount of revenue earned less the total amount of personal expenses this differs from gross income which limits what can be deducted from total revenue earned an individual s net income more closely resembles their final paycheck amount although the individual likely has more expenses that what is deducted from their pay their paycheck is a good example of their revenue being reduced by costs for a business net income is the total amount of revenue less the total amount of expenses these expenses include cost of goods sold just like gross income however net income also includes selling general administrative tax interest and other expenses not included in the calculation of gross income gross income is a much higher view of a company while net income incorporates every facet of cost because gross income incorporates both revenue and specific expenses of driving that revenue gross income is often a better gauge for comparing dissimilar companies as it analyzes how efficiently each company generated profit examples of gross incomeassume that an individual has a 75 000 annual salary generates 1 000 a year in interest from a savings account collects 500 per year in stock dividends and receives 10 000 a year from rental property income their gross annual income is 86 500 alternatively the individual can calculate their monthly gross income is approximately 7 200 imagine that same individual pays 1 500 per month in rent 450 in student loans and 300 towards an auto loan all three of these expenses are excluded from the calculation of gross income for non tax purposes an individual s gross income only considers the revenue earned in regards to the individual s federal income tax let s imagine the individual paid 500 in student loan interest for the prior year when filing their tax return the student loan interest is an above the line deduction used to factor adjusted gross income assuming the individual earned the same amount of money this year as last the individual s agi is 86 000 86 500 500 apple s consolidated statement of operations reported total net sales of 89 5 billion for the three month period ending september 2023 the company spent 42 59 billion to generate those products and spent an additional 6 49 billion on services also as part of its cost of goods sold by subtracting apple s net sales by the total cost of goods sold apple reported a gross income of 40 43 billion apple also incurred 7 3 billion of research and development costs 6 2 billion of selling general and administrative costs and 4 04 billion for income taxes all three of these expenses are excluded when calculating gross income a company s gross income only includes the company s net sales less cogs 4 | |
how can i calculate personal gross income | an individual s gross income is the total amount earned before taxes or other deductions usually an employee s paycheck will state the gross pay as well as the take home pay if applicable you ll also need to add other sources of income that you have generated gross not net 1 | |
what is the difference between gross and net income | net income is the money that you effectively receive from your endeavors the take home pay for individuals for companies it is the revenues that are left after all expenses have been deducted this is different than gross income which only includes cogs and omits all other types of expenses | |
how do you calculate gross business income | the gross income of a company is calculated as gross revenue minus the cost of goods sold cogs if a company registered 500 000 in product sales and the cost to produce those products was 100 000 then its gross income would be 400 000 | |
what is my monthly gross income | to find your personal monthly gross income calculate the amount of money you earn each month this will likely be different than the amount of money you take home or receive as payment directly from your employer your gross income can be found on a pay stub as the total amount of money you earned in a given period before any deductions or taxes are removed you can also see your total gross income on your year end w2 or 1099 alternatively you can calculate your gross income as 1 your monthly salary before taxes or 2 the number of hours you will work in a given month multiplied by your hourly pay rate | |
does gross income include taxes | yes gross income is the total amount of income a person or company has earned before deductions against that income gross income is calculated as the total amount of revenue earned before subtracting expenses like costs interest and taxes | |
what is a gross income multiplier | a gross income multiplier gim is a rough measure of the value of an investment property it is calculated by dividing the property s sale price by its gross annual rental income investors can use the gim along with other methods like the capitalization rate cap rate and discounted cash flow method to value commercial real estate properties like shopping centers and apartment complexes understanding the gross income multipliervaluing an investment property is important for any investor before signing the real estate contract but unlike other investments like stocks there s no easy way to do it many professional real estate investors believe the income generated by a property is much more important than its appreciation the gross income multiplier is a metric widely used in the real estate industry it can be used by investors and real estate professionals to make a rough determination whether a property s asking price is a good deal just like the price to earnings p e ratio can be used to value companies in the stock market multiplying the gim by the property s gross annual income yields the property s value or the price for which it should be sold a low gross income multiplier means that a property may be a more attractive investment because the gross income it generates is much higher than its market value special considerationsa gross income multiplier is a good general real estate metric but there are limitations because it doesn t take various factors into account including a property s operating costs including utilities taxes maintenance and vacancies for the same reason investors shouldn t use the gim as a way to compare a potential investment property to another similar one in order to make a more accurate comparison between two or more properties investors should use the net income multiplier nim the nim factors in both the income and the operating expenses of each property use the net income multiplier to compare two or more properties drawbacks of the gross income multiplier methodthe gim is a great starting point for investors to value prospective real estate investments that s because it s easy to calculate and provides a rough picture of what purchasing the property can mean to a buyer the gross income multiplier is hardly a practical valuation model but it does offer a back of the envelope starting point but as mentioned above there are limitations and several key drawbacks to consider when using this figure as a way to value investment properties a natural argument against the multiplier method arises because it s a rather crude valuation technique because changes in interest rates which affect discount rates in the time value of money calculations sources revenue and expenses are not explicitly considered other drawbacks include example of gross income multiplier calculationa property under review has an effective gross income of 50 000 a comparable sale is available with an effective income of 56 000 and a selling value of 392 000 in reality we d seek a number of comparable to improve analysis our gim would be 392 000 56 000 7 this comparable or comp as is it often called in practice sold for seven times 7x its effective gross using this multiplier we see this property has a capital value of 350 000 this is found using the following formula v gim x egi7 x 50 000 350 000 | |
what is the gross income test | the gross income test is one of the five necessary tests that dependents must pass before they can be claimed as such in the united states the gross income test mandates that dependents cannot earn more than a certain amount of income each year furthermore this test only applies to potential dependents that are over the age of 19 or over the age of 24 if the candidate in question is a full time student 1understanding the gross income testthe amount that a potential dependent can earn is indexed for inflation each year and consequently fluctuates periodically for 2021 for example the limit was 4 300 2 this is a spike from the 2015 threshold of 4 000 and the 2008 limit of 3 500 34 because of periodically shifting numbers it s vital for individuals to make certain they base the test on the correct up to date figure before moving on to the other four dependency tests if an individual fails the gross income test or any of the other qualifying relative dependent metrics they may not claim that dependent for purposes of the personal exemption 2 and in order to claim a dependency exemption for a qualifying child a series of qualifying child dependency tests must be met 5 there s no age limit for a qualifying relative and if you are entitled to claim an exemption for a dependent said dependent might not claim a personal exemption on their own tax return 67income considered valid for gross income considerationgross income of a qualifying relative that may be deemed a dependent takes into consideration the totality of an individual s combined income sources which may be the form of money and non tax exempt property and services the terms for calculating income from merchandising mining or manufacturing endeavors are extremely specific namely gross income is viewed as total net sales less the cost of goods sold plus any miscellaneous business income gross receipts from rental properties are deemed gross income other gross income includes any business partners share of the gross partnership income but not a share of the net profits gross income furthermore includes all taxable social security benefits taxable unemployment compensation and certain fellowship grants and scholarships an employer provides 8finally if a household member pays legally obligated child support to a child outside the home the child support is not counted in the initial gross income test and there are no gross income tests for households that include an elder or disabled member 910 | |
what is gross interest | gross interest is the annual rate of interest to be paid on an investment security or deposit account before taxes or other charges are deducted gross interest is often the headline interest rate attached to a fixed income security e g a bond or cd a loan or a deposit account gross interest is expressed as a percentage and can be contrasted with net interest which is the rate of interest earned after taxes fees and other costs are deducted as a result gross interest will always be higher than net interest understanding gross interest | |
when an individual deposits money in their bank account the bank pays interest on the funds to the account holder in compensation for the deposit this is because the deposit is used to lend money to other individual and corporate borrowers generating income for the bank the interest paid to the account holder may be deposited in the entity s account monthly quarterly or annually depending on the financial institution or type of account | the interest is simply referred to as gross interest because it does not factor in taxes which also impacts the interest earnings for example if you have 3 000 in a savings account that earns 2 interest paid on a yearly basis the quoted 2 is the gross interest so the bank would pay you 60 at the end of the year however the gross interest does not take into account other items such as taxes fees and other charges that may apply to the investment or account after these costs are taken into account and deducted from the gross interest earned the account holder actually walks away with less following from our example above if the annual fee on the savings account is 5 and you were taxed 35 taxes due would be 21 calculated by multiplying 60 by 35 and the net interest earned would be calculated as 60 21 5 34 or 1 13 which is less than the 2 gross interest gross interest is always higher than net interest gross interest and bondsgross interest is simply the pure interest amount paid by a debtor to a creditor for bonds the quoted interest income bondholders receive from their investment represents gross interest assume for example that a bond investor purchases a 1 000 par value corporate bond with a coupon rate of 3 payable annually and a maturity date of five years the bond issuer will periodically pay the bondholder a fixed interest of 3 x 1 000 30 for the duration of the bond s life the fixed coupon rate is the gross interest however at the end of the year the interest earned on the corporate bond will be taxed by the government therefore the bondholder s effective net yield on the investment will be less than 3 the net interest is calculated from the gross interest after other fees and costs are deducted remember the yield represents total investment earnings including interest payments gross yield shows this return without the deduction of expenses like taxes and commission fees | |
what is a gross lease | a gross lease is an agreement that requires the tenant to pay the property owner a flat rental fee in exchange for the exclusive use of the property the fee includes all of the costs associated with property ownership including taxes insurance and utilities gross leases can be modified to meet the needs of the tenants and are commonly used in the commercial property rental market 12 | |
how a gross lease works | a lease is a contract between a lessor or property owner and a lessee or tenant this contract is often written and gives the tenant exclusive use of the property for a certain period of time the tenant agrees to pay the owner a fixed sum of money on a regular basis whether that s weekly monthly or annually 3a gross lease is a type of lease that allows the tenant to use the property exclusively by paying a flat fee it is commonly used for rentals in commercial property such as office buildings and retail spaces that have numerous lessees fees or rents are calculated by landlords to reasonably cover the operating costs of these spaces 4 these expenses include this rent calculation may be done through analysis or from historical property data the landlord and tenant can also negotiate the amount and terms of the lease for example a tenant may ask the landlord to include janitorial or landscaping services 5gross leases allow tenants to precisely budget their expenses these leases are especially beneficial for those with limited resources or businesses that want to minimize variable costs to maximize profit 5 companies can concentrate on growing their business without the complexities associated with net leases | |
when a gross lease excludes insurance and utilities the tenant is required to absorb those costs | types of gross leasesgross leases fall into two different categories the first is called a modified gross lease while the other is called a fully service lease a modified gross lease contains the principal provisions associated with a gross lease but it can be adjusted to suit the needs of the property owner and the tenant it is essentially a combination of a gross lease and a net lease where the tenant pays base rent at the lease s inception 5this kind of gross lease takes on a proportional share of some of the other costs associated with the property as well such as property taxes utilities insurance and maintenance 3 for instance these modifications may state that the tenant is responsible for the costs associated with the electric utility but that the property owner is responsible for waste pickup modified gross leases are commonly used with commercial spaces where there is more than one tenant such as office buildings this type of lease typically falls between a gross lease where the landlord pays for operating expenses and a net lease which passes on property expenses to the tenant 5a fully service lease is one of the easiest gross lease options available it requires the tenant to cover just the rent while the landlord assumes responsibility for every other cost as such the property owner calculates the cost of other expenses such as utilities property taxes and maintenance into the rental amount 5this type of gross lease allows the tenant to rent without having to budget for additional costs including property maintenance but because the landlord covers the extra costs fully service leases can often be more expensive 6be sure you read the fine print of any lease you sign advantages and disadvantages of a gross leaseas with any other type of contract there are benefits and drawbacks to signing a gross lease for both the landlord and the tenant we ve listed some of the most common pros and cons below property owners can benefit in several ways by choosing a gross lease to rent out their properties despite these benefits the drawbacks to landlords include a gross lease help tenants in the following ways some of the primary cons include landlords can roll additional costs into the rentlandlords can pass on inflationary costs to the tenanttenants aren t responsible for any costs other than the renttenants can focus their time on their business rather than the rental spacelandlords are responsible for any additional costslandlords must spend more time on administrative duties associated with paying the operating expensestenants may have to pay a higher amount in rent than if they were also responsible for paying the billstenants may have to deal with landlords who don t keep up to date with maintenancegross leases vs net leasesa net lease is the opposite of a gross lease under a net lease the tenant is responsible for some or all costs associated with the property such as utilities maintenance insurance and other expenses there are three types of net leases net leases may allow tenants more control over some costs and aspects of the property but they come with an increased degree of responsibility for instance if maintenance is a cost borne by the tenant they may have the ability to make cosmetic changes however they also absorb most repair costs 8landlords often restrict or prohibit cosmetic changes to the property even when maintenance is a tenant expense tenants are also subject to variable utility costs to regulate the expenses they may employ different strategies to reduce consumption gross lease faqsa lease is a contract between a property owner and a lessee where the landlord agrees to give the tenant full access to the property rent on the other hand is the fee charged by a property owner for the exclusive use of their property by a tenant the main types of commercial leases are gross leases and net leases these two categories are further broken down into modified gross leases fully service gross leases single net leases double net leases and triple net leases the most common and simplest type of lease is the gross lease it is a contract between a landlord and tenant wherein the lessee in exchange for the exclusive use of a piece of property agrees to pay the lessor a fixed sum of money for a certain period of time that encompasses rent and all costs associated with ownership such as taxes insurance and utilities | |
what is the gross leverage ratio | the gross leverage ratio is the sum of an insurance company s net premiums written ratio net liability ratio and ceded reinsurance ratio the gross leverage ratio is used to determine how exposed an insurer is to pricing and estimation errors as well as its exposure to reinsurance companies understanding the gross leverage ratiothe ideal gross leverage ratio depends on what type of insurance a company is underwriting however the desired range typically falls below 5 0 for property insurers and 7 0 for liability insurers an insurer s gross leverage will usually be higher than its net leverage because the gross leverage ratio includes ceded reinsurance leverage other insurance leverage ratios include net leverage reinsurance recoverables to policyholders surplus and best s capital adequacy ratio bcar the gross leverage ratio can sometimes make an insurer s situation look more dangerous than it actually is because of the inclusion of ceded reinsurance an insurance company has to balance two primary goals it must invest the premiums it receives from underwriting activities to return a profit and limit the risk exposure created by the policies that it underwrites insurers may cede premiums to reinsurance companies to move some of the risks off their books credit rating agencies typically look at several different financial ratios when determining the health of an insurance company these ratios are created through an examination of the insurer s balance sheet the gross leverage ratio is just one type of leverage ratio there are several financial measurements for analyzing the ability of a company to meet its financial obligations leverage ratios are important because companies rely on a mixture of equity and debt to finance their operations knowing the amount of debt held by a company is useful in evaluating whether it can make payments as they come due insurers may set a target for an acceptable gross leverage ratio similar to how a central bank may set an interest rate target an insurer may accept a higher gross leverage ratio in some situations such as when it uses debt to acquire another company gross leverage ratio vs net leverage ratiothe gross leverage ratio can be thought of as a first approximation of the exposure of an insurer to pricing and estimation errors the net leverage ratio is usually a better estimate of exposure but it can be more challenging to obtain in actual practice the gross leverage ratio will be higher than the net leverage ratio under normal conditions so it tends to overestimate exposure to see why this is true we need to consider the definition of the gross leverage ratio the gross leverage ratio is defined as the net premiums written ratio plus the net liability ratio plus the ceded reinsurance ratio it can also be expressed as net premiums written policyholders surplus net liabilities policyholders surplus ceded reinsurance policyholders surplus or net premiums written net liabilities ceded reinsurance policyholders surplus net premiums written plus ceded reinsurance is equal to premiums written so it follows that the gross leverage ratio can be expressed as premiums written net liabilities policyholders surplus we need only three pieces of data to compute the gross leverage ratio they are premiums written net liabilities and policyholders surplus however the gross leverage ratio often overestimates liability most insurers rely on larger firms or groups of firms for reinsurance in case of disasters for example a company that sells homeowners insurance in a particular area might cede some of their premiums to protect themselves if the area is flooded you may even notice flood damage as an optional extra item on your homeowners insurance policy when you select this option the additional premium for flood damage may ultimately go to a separate reinsurance company this ceded reinsurance is not usually part of an insurer s exposure ceded reinsurance involves agreements between large companies so it can be difficult to determine in some cases once we have it we can subtract ceded reinsurance from premiums written to determine net premiums written the net leverage ratio is equal to the net premiums written ratio plus the net liability ratio it can also be expressed as net premiums written policyholders surplus net liabilities policyholders surplus or net premiums written net liabilities policyholders surplus the net leverage ratio is generally lower than the gross leverage ratio and it is usually more accurate however even reinsurance firms can fail the gross leverage ratio describes the insurer s exposure in a worst case scenario where the insurer cannot rely on reinsurance | |
what is gross margin | gross margin is the percentage of a company s revenue that s retained after direct expenses such as labor and materials have been subtracted it s an important profitability measure that looks at a company s gross profit as compared to its revenue gross profit is determined by subtracting the cost of goods sold from revenue the higher the gross margin the more revenue a company retains it can then use the revenue to pay other costs or satisfy debt obligations investopedia tara anandformula and calculation of gross margingross margin net sales cogs begin aligned text gross margin text net sales text cogs end aligned gross margin net sales cogs net sales is the equivalent to revenue or the total amount of money generated from sales for the period it can also be referred to as net sales because it can include discounts and deductions from returned merchandise revenue is typically called the top line because it appears at the top of the income statement costs are subtracted from revenue to calculate net income or the bottom line cogs is cost of goods sold the direct costs associated with producing goods include both direct labor costs and any costs of materials used in producing or manufacturing a company s products imagine that a business collects 200 000 in sales revenue let s assume that the cost of goods consists of the 100 000 it spends on manufacturing supplies the gross profit is therefore 100 000 after subtracting its cogs from sales the gross margin is 50 or 200 000 100 000 200 000 | |
what gross margin can tell you | a company s gross margin is the percentage of revenue after cogs it s calculated by dividing a company s gross profit by its sales gross profit is a company s revenue less the cost of goods sold a company s gross margin is 35 if it retains 0 35 from each dollar of revenue generated 1cogs has already been taken into account so those remaining funds can consequently be channeled toward paying debts general and administrative expenses interest fees and dividend distributions to shareholders companies use gross margin to measure how their production costs relate to their revenues a company might strive to slash labor costs or source cheaper suppliers of materials if its gross margin is falling or it may decide to increase prices as a revenue increasing measure gross profit margins can also be used to measure company efficiency or compare two companies with different market capitalizations gross margin may also be referred to as gross profit margin the difference between gross margin and net margingross margin focuses solely on the relationship between revenue and cogs but net margin or net profit margin is a little different a company s net margin takes all a business s expenses into account it s the percentage of net income earned from revenues received 2businesses subtract their cogs as well as ancillary expenses when calculating net margin and related margins some of these expenses include product distribution sales representative wages miscellaneous operating expenses and taxes gross margin helps a company assess the profitability of its manufacturing activities net profit margin helps the company assess its overall profitability companies and investors can determine whether the operating costs and overhead are in check and whether enough profit is generated from sales the difference between gross margin and gross profitgross margin and gross profit are among the metrics that companies can use to measure their profitability both of these figures can be found on corporate financial statements and specifically on a company s income statement they re commonly used interchangeably but these two figures are different gross margin is a profitability measure that s expressed as a percentage gross profit is expressed as a dollar figure gross profit can be calculated by subtracting the cost of goods sold from a company s revenue it sheds light on how much money a company earns after factoring in production and sales costs | |
how do you calculate gross margin | gross margin is expressed as a percentage first subtract the cost of goods sold from the company s revenue this figure is the company s gross profit expressed as a dollar figure divide that figure by the total revenue and multiply it by 100 to get the gross margin | |
what s the difference between gross margin and gross profit | the terms gross margin and gross profit are often used interchangeably but they re two separate metrics that companies use to measure and express their profitability both factor in a company s revenue and the cost of goods sold but they re a little different gross profit is revenue less the cost of goods sold and is expressed as a dollar figure a company s gross margin is the gross profit compared to its sales and is expressed as a percentage | |
what is a good gross margin | the gross margin varies by industry service based industries tend to have higher gross margins and gross profit margins because they don t have large amounts of cogs the gross margin for manufacturing companies will be lower because they have larger cogs 3the bottom linedifferent metrics can be used to measure a company s profitability the gross margin is just one of these figures gross margin may also be called gross profit margin it looks at a company s gross profit compared to its revenue or sales and is expressed as a percentage this figure can help companies understand whether there are any inefficiencies and if cuts are required to address them and increase profits the gross margin is also a way for investors to determine whether a company is a good investment | |
what is the gross margin return on investment gmroi | the gross margin return on investment gmroi is an inventory profitability evaluation ratio that analyzes a firm s ability to turn inventory into cash above the cost of the inventory it is calculated by dividing the gross margin by the average inventory cost and is used often in the retail industry gmroi is also known as the gross margin return on inventory investment gmroii investopedia nono floresunderstanding the gross margin return on investment gmroi the gmroi is a useful measure as it helps the investor or manager see the average amount that the inventory returns above its cost a ratio higher than one means the firm is selling the merchandise for more than what it costs the firm to acquire it and shows that the business has a good balance between its sales margin and cost of inventory the opposite is true for a ratio below 1 some sources recommend the rule of thumb for gmroi in a retail store to be 3 2 or higher so that all occupancy and employee costs and profits are covered the formula for the gmroi is as follows gmroi gross profitaverage inventory cost mathit gmroi frac text gross profit text average inventory cost gmroi average inventory costgross profit to calculate the gross margin return on inventory two metrics must be known the gross margin and the average inventory the gross profit is calculated by subtracting a company s cost of goods sold cogs from its revenue the difference is then divided by its revenue the average inventory is calculated by summing the ending inventory over a specified period and then dividing the sum by the number of periods while considering the obsolete inventory portion scenarios as well for example assume luxury retail company abc has a total revenue of 100 million and cogs of 35 million at the end of the current fiscal year therefore the company has a gross margin of 65 which means it retains 65 cents for each dollar of revenue it has generated the gross margin may also be stated in dollar terms rather than in percentage terms at the end of the fiscal year the company has an average inventory cost of 20 million this firm s gmroi is 3 25 or 65 million 20 million which means it earns revenues of 325 of costs company abc is thus selling the merchandise for more than a 3 25 markup for each dollar spent on inventory assume luxury retail company xyz is a competitor to company abc and has total revenue of 80 million and cogs of 65 million consequently the company has a gross margin of 15 million or 18 75 cents for each dollar of revenue it has generated the company has an average inventory cost of 20 million company xyz has a gmroi of 0 75 or 15 million 20 million it thus earns revenues of 75 of its costs and is getting 0 75 in gross margin for every dollar invested in inventory this means that company xyz is making only 0 75 cents for each 1 spent on inventory which is not enough to cover business expenses other than inventory such as selling general and administrative expense sg a marketing and sales for that xyz margins are sub standard in comparison to company xyz company abc may be a more ideal investment based on the gmroi | |
what is gross merchandise value gmv | gross merchandise value gmv is the total value of merchandise that s sold over a given period through a customer to customer c2c exchange site it s a measurement of the growth of the business or the use of the site to sell merchandise owned by others gross merchandise value gmv is often used to determine the health of an e commerce site s business because its revenue will be a function of gross merchandise sold and fees charged it s most useful as a comparative measure over time such as current quarter value versus previous quarter value gmv is also known as gross merchandise volume both phrases indicate the total monetary value of total sales understanding gross merchandise value gmv gross merchandise value gmv is calculated before the deduction of any fees or expenses it provides information that a retail business can use to measure growth often on a month over month quarter over quarter or year over year basis a retail business can generally calculate the gross value of all completed sales but merchandise returns may have to be removed from this number to provide an accurate calculation 1simply multiply the number of goods sold by the sales price of the goods to calculate gmv the formula is gmv sales price of goods x number of goods sold accrued fees and expenses may include advertising delivery returns and discounts advantages and disadvantages of gmvgmv has its advantages and drawbacks just like most other growth measurements retailers may or may not be the producers of the goods they sell so measuring the gross value of all sales provides insight into the company s performance this is especially true in the customer to customer market where the retailer serves as a third party mechanism for connecting buyers and sellers without actually participating in the transaction gmv may also provide value to retailers in the consignment sector because they never officially purchase their inventory the items are often housed within a company s retail location but the business functions solely as the authorized reseller of another person s or entity s merchandise or property often for a fee they re generally not the true owner of the items because the person or entity that placed the item on consignment may return and claim the item if they choose to do so gmv represents the total value of goods sold on a c2c exchange but it doesn t truly reflect the profitability of a company it primarily shows the true revenue that a company earns from fees the entire 500 doesn t go to the company if its gmv was 500 for the month the majority will go to the individual who sold the goods the company s true revenue would be the fee it charges for the use of its site the company s true revenue would then be 500 x 2 10 if the fee was 2 gmv can have other disadvantages depending on the type of e commerce site gmv would indicate its revenues but it would only be one metric providing a limited view if a company were an online retailer that produced and sold its own goods it wouldn t tell you how many customers visited the site or how much revenue was received from repeat customers both are important indicators in terms of customer satisfaction and the long term health of the company provides insight into a company s performanceallows for comparison with competitorssimple and quick calculation to performnot a true reflection of a company s actual revenuea limited metric that doesn t consider other factors such as repeat customerscustomer to customer retailerscustomer to customer c2c retailers provide a framework or system for sellers to list items they have in inventory and for buyers to find items of interest the retailer functions as an intermediary facilitating the transaction commonly for a fee without actually being a buyer or seller at any point in the transaction the retailer facilitating the transaction never comes in contact with any of the physical merchandise in many of these customer to customer sales the seller will send the item directly to the buyer when the financial portion of the sale is complete the estimated gross merchandise value gmv of amazon amzn was more than 700 billion in 2023 2this model can differ drastically from other retail models in which the retailer purchases merchandise from producers manufacturers or distributors and then essentially functions as an authorized reseller of goods the company has purchased gross merchandise value gmv vs gross transaction value gtv gmv can be defined as the total dollar value of everything sold through a marketplace in a given period but gross transaction value gtv is a calculation of the revenue relative to commissions gtv is used more in businesses that operate on commissions because it s equal to the number of items sold multiplied by the price collected 3gtv is calculated by multiplying the number of transactions by the average order value by the total number of transactions made and the items sold it tends to be used by e commerce companies in marketplaces where multiple sellers transact example of gmvtwo of the most well known c2c sites are ebay and etsy assume that ebay sold 100 goods during the first quarter of the fiscal year all those goods were priced at 5 ebay s gmv would be 100 x 5 500 for the first quarter now let s say that etsy sold 80 goods in that same quarter and all the goods were priced at 4 etsy s gmv would be 80 x 4 320 for the first quarter ebay ebay has a better gmv at 500 than etsy etsy does at 320 but this doesn t tell the whole story a portion of the revenue on these sites has to go back to the seller that sold the goods ebay and etsy only keep the fees they charge this is their actual revenue ebay charges a fee of 2 so it would bring in 10 500 x 2 etsy charges a higher fee of 4 etsy would bring in 12 80 320 x 4 etsy performed better because it brought in higher take home revenues | |
what does gmv mean | gmv means gross merchandise value or gross merchandise volume it usually refers to the total value of merchandise sold over a given period through a customer to customer c2c exchange site | |
is gross merchandise value the same as revenue | gmv can be the same as gross revenue depending on the type of e commerce site it s a reflection of the total value of goods sold for sites like ebay but not the actual revenue the company makes because a portion of those revenues goes to the sellers of the goods the actual revenue that ebay makes would be from the fees it charges on the sales | |
what is gross merchandise value in a startup | gmv is the gross merchandise revenue of a startup it s the total revenue that a company generates through the sale of its goods or services igmv is measured in conjunction with net sales that take deductions into account | |
how is gross merchandise value calculated | gmv is calculated by multiplying the total amount of goods sold by their sales price in a given period gmv sales price of goods x number of goods sold the bottom linegross merchandise value gmv is the total value of goods sold by a customer to customer c2c exchange site but the metric is often applied to other types of retailers gmv is a handy metric to calculate because it reports the total value of goods sold but it should be taken into consideration with other metrics particularly for those companies that generate revenue through fees | |
what is gross national happiness gnh | gross national happiness gnh is a measure of economic happiness and moral progress that the king of the himalayan country of bhutan introduced in the 1970s as an alternative to gross domestic product rather than focusing strictly on quantitative economic measures gross national happiness takes into account an evolving mix of quality of life factors 1the kingdom of bhutan s first legal code written at the time of unification in 1729 stated that if the government cannot create happiness for its people there is no purpose for the government 2understanding gross national happiness gnh king jigme singye wangchuck told the financial times in a 1972 interview that gross national happiness is more important than gross national product 3 it is not clear how seriously king jigme had thought through this new metric but bhutanese scholars have since picked up the idea and run with it the gnh has evolved into a somewhat scientific measure of the once isolated kingdom s economic and moral development in 1998 the government of bhutan established the center for bhutan studies and gross national happiness cbsgnh to conduct research on the topic the institute s mandate was to develop a gnh index and indicators that the government could build into its public policy decisions bhutan could then share this framework with the outside world with which the isolated himalayan country was increasingly in contact 4to that end the gnh center in bumthang developed what it calls the four pillars of gnh these are good governance sustainable development preservation and promotion of culture and environmental conservation the 2008 constitution dictates that lawmakers must take each into account when considering new legislation 1these pillars provide the foundation for the happiness which is manifest in the nine domains of gnh psychological well being standard of living good governance health community vitality cultural diversity time use and ecological resilience 1the cbsgnh published an official report of its research into gnh in 2012 the report draws upon data collected and refined in pre surveys in 2006 and 2008 then a formal survey in 2010 5 in this report the center provides an overview of national performance across the nine domains described above each domain is weighted equally but the indicators that go toward each domain s rating are scaled according to the subjectivity of that indicator 6the research allows for so many components and domains of happiness because it operates on the assumption that happiness is a multidimensional concern true contentment follows from the sense that others are happy not just the self in bhutan the pursuit of happiness is a collective one though a significant portion of the sentiment comes from within the nine domain structure of gnh attempts to capture that multidimensional pursuit | |
what is gross national income gni | gross national income gni is the total amount of money earned by a nation s people and businesses it is used to measure and track a nation s wealth from year to year the number includes the nation s gross domestic product gdp plus the income it receives from overseas sources the more widely known term gdp is an estimate of the total value of all goods and services produced within a nation for a set period usually a year gni is an alternative to gross domestic product gdp as a means of measuring and tracking a nation s wealth and is considered a more accurate indicator for some nations the u s bureau of economic affairs bea tracks the gdp to measure the health of the u s economy from year to year the two numbers are not significantly different finally there s gross national product gnp which is a broad measure of all economic activity investopedia laura porterunderstanding gross national income gni gni calculates the total income earned by a nation s people and businesses including investment income regardless of where it was earned it also covers money received from abroad such as foreign investment and economic development aid residence rather than citizenship is the criterion for determining nationality in gni calculations as long as the residents spend their income within the country gni has come to be preferred to gdp by organizations such as the world bank it also is used by the european union to calculate the contributions of member nations to calculate gni compensation paid to resident employees by foreign firms and income from overseas property owned by residents is added to gdp while compensation paid by resident firms to overseas employees and income generated by foreign owners of domestic property is subtracted product and import taxes that are not already accounted for in gdp are also added to gni while subsidies are subtracted to convert a nation s gdp to gni three terms need to be added to the former real world examples of gnifor many nations there is little difference between gdp and gni since the difference between income received by the country versus payments made to the rest of the world does not tend to be significant for instance the u s gni for 2021 was about 23 6 trillion 1 the gdp in that same year was 23 3 trillion 2for some countries however the difference is significant gni can be much higher than gdp if a country receives a large amount of foreign aid or foreign investment this is the case with bangladesh which recorded a 2021 gni of 438 billion compared to a gdp of 416 billion but it can be much lower if foreigners control a large proportion of a country s production as is the case with ireland a low tax jurisdiction where the european and u s subsidiaries of a number of multinational companies nominally reside ireland recorded a 2021 gni of just over 382 billion while their gdp for the same period stood at 504 billion 12gdp vs gni vs gnpof the three measures gnp is the least used possibly because it might be deceptive for instance if a nation s wealthiest citizens routinely move their money offshore counting that money would inflate the nation s apparent wealth in fact gni may now be the most accurate reflection of national wealth given today s mobile population and global commerce | |
how does gni differ from gdp and gnp | gross national income gni calculates the total income earned by a nation s people and businesses including investment income regardless of where it was earned it also covers money received from abroad such as foreign investment and economic development aid gdp is the total market value of all finished goods and services produced within a country in a set time period gnp includes the income of all of a country s residents and businesses whether it flows back to the country or is spent abroad it also adds subsidies and taxes from foreign sources | |
how is gni calculated | to calculate gni compensation paid to resident employees by foreign firms and income from overseas property owned by residents is added to gdp while compensation paid by resident firms to overseas employees and income generated by foreign owners of domestic property is subtracted product and import taxes that are not already accounted for in gdp are also added to gni while subsidies are subtracted | |
when is gni useful | for nations like the us there is little difference between gdp and gni the difference between income received versus payments made to the rest of the world does not tend to be significant for some countries however the difference is significant gni can be much higher than gdp if a country receives a large amount of foreign aid as is the case with east timor conversely it can be much lower if foreigners control a large proportion of a country s production as is the case with ireland a low tax jurisdiction where the european and u s subsidiaries of a number of multinational companies nominally reside the bottom linegross national income gni is the total income earned by a country s people and businesses even if it was earned outside the country it s a measure of national wealth that can be used as an alternative to gross domestic product gdp to calculate gni add income from foreign sources to a country s gdp for many countries there isn t much difference between gni and gdp however if a country receives significant foreign investment or foreign aid gni may be much higher than gdp | |
what is gross national product gnp | gross national product gnp is an estimate of the total value of all the final products and services turned out in a given period by the means of production owned by a country s residents 1 gnp is commonly calculated by taking the sum of personal consumption expenditures private domestic investment government expenditure net exports and any income earned by residents from overseas investments then subtracting income earned by foreign residents net exports represent the difference between what a country exports minus any imports of goods and services gnp is related to another important economic measure called gross domestic product gdp which takes into account all output produced within a country s borders regardless of who owns the means of production gnp starts with gdp adds residents investment income from overseas investments and subtracts foreign residents investment income earned within a country 1investopedia eliana rodgersunderstanding gross national product gnp gnp measures the total monetary value of the output produced by a country s residents therefore any output produced by foreign residents within the country s borders must be excluded in calculations of gnp while any output produced by the country s residents outside of its borders must be counted gnp does not include intermediate goods and services to avoid double counting since they are already incorporated in the value of final goods and services the u s used gnp until 1991 as its main measure of economic activity after that point it started to use gdp in its place for two main reasons 2 first gdp corresponds more closely to other u s economic data of interest to policymakers such as employment and industrial production which like gdp measure activity within the boundaries of the u s and ignore nationalities second the switch to gdp was to facilitate cross country comparisons because most other countries at the time primarily used gdp 3the difference between gnp and gdpgnp and gdp are very closely related concepts and the main differences between them come from the fact that there may be companies owned by foreign residents that produce goods in the country and companies owned by domestic residents that produce goods for the rest of the world and revert earned income to domestic residents for example there are a number of foreign companies that produce goods and services in the united states and transfer any income earned to their foreign residents likewise many u s corporations produce goods and services outside of the u s borders and earn profits for u s residents if income earned by domestic corporations outside of the united states exceeds income earned within the united states by corporations owned by foreign residents the u s gnp is higher than its gdp calculating both gnp and gdp can produce different results in terms of total output for example in 2021 according to q3 data u s gdp was 23 8 trillion while its gnp was 23 9 trillion 4while gdp is the most widely followed measure of a country s economic activity gnp is still worth looking at because large differences between gnp and gdp may indicate that a country is becoming more engaged in international trade production or financial operations the larger the difference between a country s gnp and gdp the greater the degree of incomes and investment activity in that country involve transnational activities such as foreign direct investment one way or another | |
what does gross national product measure | gross national product is one metric for measuring a nation s economic output gross national product is the value of all products and services produced by the citizens of a country both domestically and internationally minus income earned by foreign residents for instance if a country had production facilities in a neighboring country and its home country gross national product would account for both of these production outputs | |
what is the difference between gross national product and gross domestic product | gross national product accounts for its citizen s productions both within and outside its borders this figure then subtracts income earned by foreign residents within the country by contrast gross domestic product measures the production of goods and services made within a country s borders by both citizens and foreign residents overall 1 | |
what is an example of gross national product | consider a country that has a gross national product that exceeds its gross domestic product this indicates that its citizens businesses and corporations are providing net inflows to the country through their overseas operations consequently this higher gross national product may signal that a country is increasing its international financial operations trade or production | |
what is the gross national product gnp deflator | the gross national product deflator is an economic metric that accounts for the effects of inflation in the current year s gross national product gnp by converting its output to a level relative to a base period the gnp deflator can be confused with the more commonly used gross domestic product gdp deflator the gdp deflator uses the same equation as the gnp deflator but with nominal and real gdp rather than gnp understanding the gross national product gnp deflatorthe gnp deflator is simply the adjustment for inflation that is made to nominal gnp to produce real gnp the gnp deflator provides an alternative to the consumer price index cpi and can be used in conjunction with it to analyze some changes in trade flows and the effects on the welfare of people within a relatively open market country the cpi is based upon a basket of goods and services while the gnp deflator incorporates all of the final goods produced by an economy this allows the gnp deflator to more accurately capture the effects of inflation since it s not limited to a smaller subset of goods calculating the gross national product gnp deflatorthe gnp deflator is calculated with the following formula gnp deflator nominal gnp real gnp 100 text gnp deflator left frac text nominal gnp text real gnp right times 100 gnp deflator real gnpnominal gnp 100the result is expressed as a percentage usually with three decimal places the first step to calculating the gnp deflator is to determine the base period for analysis in theory you can work with gdp and foreign earnings data for the base period and current periods and then extract the figures needed for the deflator calculation however nominal gnp and real gnp figures as well as the deflator charted over time can usually be accessed through releases from central banks or other economic entities in the united states the bureau of economic analysis bea the st louis federal reserve bank and others provide this data as well as other indicators that track similar economic statistics that measure essentially the same thing but through different formulations so actually calculating the gnp deflator is usually unnecessary the more important task is how to interpret the data that the gnp deflator is applied to interpreting gnp figuresthe gnp deflator as mentioned is just the inflation adjustment the higher the gnp deflator the higher the rate of inflation for the period the relevant question is what having an inflation adjusted gross national product the real gnp actually tells you the real gnp is simply the actual national income of the country being measured it doesn t care where the production is located in the world as long as the earnings come back home in terms of differences between real gnp and real gdp real gdp is the preferred measure of u s economic health real gnp shows how the u s is doing in terms of its foreign investments in addition to domestic production | |
what is gross net written premium income gnwpi | gross net written premium income gnwpi is the dollar amount of an insurance company s premiums that are used to determine what portion of premiums is owed to a reinsurer gross net written premium income is the base to which the reinsurance premium rate is applied taking into account cancellations refunds and premiums paid for reinsurance coverage understanding gross net written premium income gnwpi | |
when an insurance company enters into a reinsurance agreement it reduces its overall risk exposure by ceding some risks to a reinsurer in exchange for taking on these risks the reinsurer is entitled to a portion of the insurer s premiums | in a non proportional reinsurance agreement the amount of premiums that the reinsurer is entitled to be determined by a fixed rate this rate is multiplied by a base premium which represents the dollar amount of an insurer s premiums to which the reinsurer is entitled special considerationsthe way that the subject premium is calculated is defined in the reinsurance contract the parties agree to the reinsurance rate premium percentage that will be applied to the base premium and whether the base premium also called the subject premium or underlying premium will be calculated using earned or written premiums if earned premiums are chosen the calculation uses gross net earned premium income gnepi as the base this is the most common rating base for an excess of loss reinsurance if the agreement uses written premiums then gnwpi is used gross net written premium income is calculated by taking the ceding insurer s premium income rather than premium receipts the premiums are net meaning that any cancelations refunds and premiums paid for reinsurance are deducted and gross because expenses are not deducted if the amount of risk taken on by the reinsurer increases over time the written premium income will be higher than earned premium income gnwpi vs gross broking incomegross net written premium income is a good measure of how well an insurer is doing but it doesn t consider earnings on investments such as equities or bonds it also doesn t take into account any assets that the insurer has that s why many firms are more interested in broking gross income which does include those figures so while gnwpi is a good indicator you cannot rely on it solely to ascertain an insurer s financial health | |
what is gross processing margin gpm | the gross processing margin gpm is the difference between the cost of a raw commodity and the income it generates once sold as a finished product the gross processing margin is affected by supply and demand the prices for raw commodities fluctuate creating an ever changing spread between the raw inputs and the processed products investors traders and speculators are able to trade futures based on the price difference between a raw commodity and the final product it produces for example a trader can go long on the commodity and short on the finished product of it understanding gross processing margin gpm the gross processing margin can go from generous to thin on a seasonal basis as well as from unexpected weather events or regional turmoil in an area that is a significant producer of a commodity when the spread for the gross processing margin widens meaning that the pricing of the outputs is exceeding the cost of the inputs that is generally seen as a signal for production capacity expansion the gross processing margin usually increases for one of two reasons one the input commodity sees a glut possibly due to overproduction or simply luck and therefore the price weakens significantly two the price for the processed products rises due to increasing demand for the health of the whole value chain investors generally want to see the gpm increasing for the latter reason as it represents more sustainable industry growth gross processing margin gpm and the type of processorthe gross processing margin for two businesses using the same raw commodity can be very different depending on the end product mix this applies to everything from soybeans to crude but it is easiest to understand in terms of livestock and meat two pork processors are working with the same raw commodity but if one simply sells whole cuts frozen and the other sells a range of value added products including bacon sausages and marinated loins then their gross processing margins will likely reflect that product variance the frozen wholesaler has lower costs of production but similar procurement costs the value add focused processor puts more cost and time into the meat but should see a much higher premium upon sale commodity specific names for gross processing margin gpm the gross processing margin may go by a different name depending on the commodity it is describing for example the gpm for oil is called the crack spread in a reference to the refining process of cracking hydrocarbons into petroleum products simply put the crack spread is the price difference between a barrel of crude oil and the resulting petroleum products the crack is the industry term for breaking up crude oil into its components products which include propane heating fuel gasoline and distillates like rocket fuel and grease for soybeans and canola it s called the crush spread because soybeans are crushed to produce oil and meal this is often used by traders to manage risk by combining soybean soybean oil and soybean meal futures into a single position combining separate positions into one is also done with crack spreads trading gross processing margin gpm let s use the example of crack spreads to explain trading gpm crack spreads are covering the oil refinement margins and as such are heavily influenced by geopolitical issues if there were to be a reduction in oil supply due to regional instabilities the price of crude oil would rise this would affect the crack spread by narrowing the spread or margin a trader would determine that the price of the refined product in this case petroleum is higher than the crude price the margin is considered positive however traders expect that crude prices will fall once stability is regained in the region so they will place their trades assuming the price of crude will fall and the spread will widen 1 | |
what is the difference between gross processing margin and gross profit margin | gross processing margin is the difference between a raw commodity and the price of its finished product when sold gross profit margin is the amount of money left over from product sales after subtracting the cost of goods sold cogs cogs can also be referred to as cost of sales and includes all of the costs and expenses directly related to the production of goods can gross processing margin be too high although gross processing margins fluctuate continuously a high gpm can be dangerous for both the business dealing with the commodity itself and the trader however large swings in gpm can be advantageous for strategic positioning especially when hedging long term positions the bottom linegross processing margin gpm is the margin resulting from the subtraction of the raw product s cost from the finished product s sale price this margin is in a constant state of flux due to the economic pressures of supply and demand this price action makes gpm an attractive play for certain traders who understand the commodities they are trading and how to benefit from the spread | |
what is gross profit | gross profit is a company s profit after deducting the costs associated with producing and selling its products or services it s also known as sales profit or gross income gross profit is calculated on a company s income statement by subtracting the cost of goods sold cogs from total revenue it s important to note that gross profit differs from operating profit which is calculated by subtracting operating expenses from gross profit investopedia theresa chiechiformula for gross profitcalculating gross profitgross profit assesses a company s efficiency in using labor and supplies to produce goods or services unlike net income gross profit doesn t include fixed costs expenses that must be paid regardless of the output level fixed costs include items like rent advertising and insurance instead gross profit focuses on variable costs that fluctuate with production levels including under absorption costing which is required for external reporting under generally accepted accounting principles gaap a portion of fixed costs is assigned to each unit of production 1 for example if a factory produces 10 000 widgets and pays 30 000 in rent for the building a 3 cost would be attributed to each widget under absorption costing a company s gross profit will vary depending on whether it uses absorption or variable costing absorption costs include fixed and variable production costs in cogs which can lower gross profit variable costing includes only variable costs in cogs generally resulting in a higher gross profit since fixed costs are treated separately gross profit vs gross profit margingross profit calculates the gross profit margin a metric that evaluates a company s production efficiency over time it measures how much money is earned from sales after subtracting cogs showing the profit earned on each dollar of sales comparing gross profits year to year or quarter to quarter can be misleading since gross profits can rise while gross margins fall although the terms are similar gross profit differs from gross profit margin gross profit is expressed as a currency value while gross profit margin is a percentage the formula is gross profit margin revenue cost of goods sold revenue x 100gross profit vs net incomegross profit differs from net profit also known as net income while both are indicators of a company s financial health they serve different purposes gross profit is calculated by subtracting the cost of goods sold cogs from net revenue net income is calculated by subtracting all operating expenses from gross profit net income reflects the profit earned after all expenses while gross profit focuses solely on product specific costs gross profit helps evaluate how well a company manages production labor costs raw material sourcing and manufacturing spoilage net income assesses whether the operation is profitable including administrative costs rent insurance and taxes net income is often called the bottom line because it resides at the end of an income statement it refers to the company s total profit after accounting for all expenses including operating costs taxes and interest example of gross profitto calculate the gross profit we first subtract the cost of goods sold cogs from total revenue cogs totals 126 584 million while selling administrative and other fixed expenses aren t included subtract the cogs from revenue to obtain a gross profit of 151 800 126 584 25 216 millionto determine the gross profit margin divide the gross profit by total revenues for a margin of 25 216 151 800 16 61 most businesses have a gross profit margin that typically falls between 20 and 40 although this varies significantly by industry 2advantages of using gross profitgross profit isolates a company s performance of the product or service it is selling removing the noise of administrative or operating costs allows a company to think strategically about product performance and implement cost control strategies more effectively gross profit is also generally more controllable costs such as utilities rent insurance or supplies are unavoidable and relatively fixed while gross profit is dictated by net revenue and cost of goods sold this means a company can strategically adjust more elements of gross profit than it can for net profit limitations of using gross profitstandardized income statements prepared by financial data services may show different gross profits these statements display gross profits as a separate line item but they are only available for public companies investors reviewing private companies income should familiarize themselves with the cost and expense items on a non standardized balance sheet that may or may not factor into gross profit calculations while gross profit is a useful high level gauge companies often need to dig deeper to understand underperformance for example if a company s gross profit is 25 lower than its competitor s it should investigate all revenue streams and each component of cogs to identify the cause gross profit can also be misleading when analyzing the profitability of service sector companies for example a law office with no cost of goods sold will show a gross profit equal to its revenue while gross profit might suggest strong performance companies must also consider below the line costs when analyzing profitability | |
what does gross profit measure | gross profit or gross income equals a company s revenues minus its cost of goods sold cogs it is typically used to evaluate how efficiently a company manages labor and supplies in production generally speaking gross profit will consider variable costs which fluctuate compared to production output these costs may include labor shipping and materials among others | |
what is an example of gross profit | consider the following quarterly income statement where a company has 100 000 in revenues and 75 000 in cost of goods sold under expenses the calculation would not include selling general and administrative sg a expenses to arrive at the gross profit total the 100 000 in revenues would subtract 75 000 in cost of goods sold to equal 25 000 | |
what is the difference between gross profit and net profit | gross profit is the income after production costs have been subtracted from revenue and helps investors determine how much profit a company earns from the production and sale of its products by comparison net profit or net income is the profit left after all expenses and costs have been removed from revenue it helps demonstrate a company s overall profitability which reflects the effectiveness of a company s management | |
how do you calculate gross profit | gross profit is the difference between net revenue and the cost of goods sold total revenue is income from all sales while considering customer returns and discounts cost of goods sold is the allocation of expenses required to produce the good or service for sale the bottom lineby subtracting its cost of goods sold from its net revenue a company can gauge how well it manages the product specific aspect of its business gross profit helps determine whether products are being priced appropriately whether raw materials are inefficiently used or whether labor costs are too high gross profit helps a company analyze its performance without including administrative or operating costs | |
what is gross profit margin | gross profit margin is a financial metric analysts use to assess a company s financial health it is the profit remaining after subtracting the cost of goods sold cogs in simple terms gross profit margin shows the money a company makes after accounting for its business costs this metric is usually expressed as a percentage of sales also known as the gross margin ratio a typical profit margin falls between 5 and 10 but it varies widely by industry 1gross profit is the total profit a company makes after deducting its costs calculated as total sales or revenue minus the cost of goods sold cogs and expressed as a dollar value gross profit margin is the profit a company makes expressed as a percentage formula and calculation of gross profit margina company s gross profit margin is calculated using the following formula gross profit margin net sales cogs net sales begin aligned text gross profit margin frac text net sales text cogs text net sales end aligned gross profit margin net salesnet sales cogs first subtract the cogs from a company s net sales which is its gross revenues minus returns allowances and discounts then divide this figure by net sales to calculate the gross profit margin as a percentage analysts use a company s gross profit margin to compare its business model with its competitors for business owners it s crucial to understand not just gross profits but also other profit margins like operating profit margin and net profit margin to assess your business s profitability after accounting for costs like inventory salaries and rent 2 | |
how gross profit margin works | gross profit is a company s total profit after deducting the cost of doing business specifically its cogs and is expressed as a dollar value gross profit margin on the other hand is this profit expressed as a percentage gross profit margin is one of the key metrics that analysts and investors use to assess a company s financial health and efficiency companies use gross profit margin to identify areas for cost cutting and sales improvement a high gross profit margin indicates efficient operations while a low margin suggests areas needing improvement product pricing adjustments may influence gross profit margins typically selling products at a premium increases gross margins however high prices may reduce market share if fewer customers buy the product this can be a delicate balancing act requiring careful management to avoid losing customers while maintaining profitability fluctuating margins might also indicate poor management or product issues but they can also reflect justified operational changes such as initial high costs for automation that eventually reduce overall expenses any temporary volatility shouldn t be a concern for example while the initial investment in automating supply chain formations may be high the cost of goods will eventually decrease due to reduced labor costs associated with the automation compare companies gross profit margins within the same industry to identify which companies are performing well and which are lagging this metric is particularly useful for industry specific comparisons because companies in the same industry generally have similar asset utilization efficiency meaning their ability to convert assets into revenue is comparable 3gross profit margin vs net profit margin vs operating profit margingross profit margin is among the key profitability metrics that analysts and investors watch the other two are net profit margin and operating profit margin net profit margin is a key financial metric indicating a company s financial health also known as net margin it shows the profit generated as a percentage of the company s revenue simply put net profit margin is the ratio of its net profit to its revenues management can use the net profit margin to identify business inefficiencies and evaluate the effectiveness of its current business model to calculate a company s net profit margin subtract the cogs operating expenses other expenses interest and taxes from its revenue then divide this figure by the total revenue for the period and multiply by 100 to get the percentage a company s operating profit margin or operating profit indicates how much profit it generates from its core operations after accounting for all operating expenses to calculate operating profit margin subtract the cost of goods sold cogs operating expenses depreciation and amortization from total revenue you then express the result as a percentage by dividing by total revenue and multiplying by 100 similar to gross and net profit margins example of gross profit marginlet s assume that company abc and company xyz produce widgets with identical characteristics and similar quality levels if company abc finds a way to manufacture its product at one fifth of the cost it will command a higher gross margin due to its reduced cost of goods sold this gives company abc a competitive edge in the market to compensate for its lower gross margin company xyz decides to double its product price to boost revenue however this strategy by company xyz has a potential downside it might backfire if customers are put off by the higher price in that case company xyz could lose both gross margin and market share | |
what does gross profit margin indicate | a company s gross profit margin indicates how much profit it makes after accounting for the direct costs associated with doing business put simply it can tell you how well a company turns its sales into a profit expressed as a percentage it is the revenue less the cost of goods sold which include labor and materials | |
what s the difference between a high and low gross profit margin | companies strive for high gross profit margins as they indicate greater degrees of profitability when a company has a higher profit margin it means that it operates efficiently it can keep itself at this level as long as its operating expenses remain in check a lower gross profit margin on the other hand is a cause for concern it can impact a company s bottom line and means there are areas that can be improved | |
how does a company increase its gross profit margin | there are several ways that a company can increase its gross profit margin and therefore its profitability these include the bottom lineas an investor it s smart to look at key financial metrics to make well informed decisions about the companies you add to your portfolio one important metric is the gross profit margin which you can calculate by subtracting the cost of goods sold from a company s revenue both figures are available on the income statement a higher gross profit margin indicates a more profitable and efficient company however comparing companies margins within the same industry is essential as this allows for a fair assessment due to similar operational variables | |
what is the gross rate of return | the gross rate of return is the total rate of return on an investment before the deduction of any fees commissions or expenses the gross rate of return is quoted over a specific period of time such as a month quarter or year this can be contrasted with the net rate of return which deducts fees and costs to provide a more realistic measurement of return understanding gross rate of returnthe gross rate of return on an investment is one measure of a project or investment s gross profit it typically includes capital gains and any income received from the investment by comparison the net rate of return deducts fees and expenses from the investment s final value the formula for gross rate of return is gross rate of return final value initial value initial value text gross rate of return frac text final value text initial value text initial value gross rate of return initial value final value initial value the rate of return for any specific investment can be calculated in a number of ways and it is important to understand the differences special considerationsdetails on how an investment company calculates returns are often included in the fund s prospectus the gross rate of return is often quoted as the rate of return on an investment in fund marketing materials returns for more than a year are often annualized which provides the geometric average return of an investment for each year over a given time period in investment management the cfa institute s global investment performance standards gips govern the calculation and reporting of returns investors can rely on the gips return standards for comparing investment return characteristics across the industry types of gross returninvestors often use return calculations when considering a new investment or assessing the performance of an investment net return is typically not as easily identified as a gross return for this reason investors often turn to the expense ratio in order to determine how the expenses affect the return of the fund the expense ratio is a mutual fund characteristic that represents the percentage of fund assets paid for expenses it is often used in conjunction with a fund s total return and benchmark return to provide a comparison of the fund s performance as an example a fact sheet provided by one of the market s top large cap funds the quanti fied stf fund mutf qstfx provides an example of how returns and expenses are expressed the quantified stf fund reports a gross rate of return it also provides a breakdown of the fund s expenses and has an expense ratio of 1 71 gross rate of return vs net returnfor net return fees and commissions are deducted as well as the effects of taxes and inflation a currency loses purchasing power due to inflation which also affects the return on an investment therefore inflation should be included in the calculation of real return if for example annual inflation is 2 and the nominal return on an investment is 1 the investor will have made a negative real return in the course of one year thus the gross rate of return can be substantially different than the net rate of return which deducts fees and expenses for example the gross return realized on a mutual fund that charges a 5 75 sales charge will be very different than the net return which will be realized after the charge has been deducted | |
what are gross receipts | gross receipts are sales of a business that form the basis for corporate taxation in a handful of individual states and certain local tax authorities the components of gross receipts vary by state and municipality understanding gross receiptsgross receipts means the total amount of all receipts in cash or property without adjustment for expenses or other deductible items unlike gross sales gross receipts capture anything that is not related to the normal business activity of an entity tax refunds donations interest and dividend income and others also gross receipts do not account for discounts or price adjustments some states and local tax jurisdictions impose taxes on gross receipts instead of corporate income tax or sales tax 1state examples of gross receiptstexas tax code section 171 103 defines gross receipts for a business as the sum of ohio revised code section 5751 01 defines gross receipts for the purposes of commercial activity tax cat as the total amount realized by a person without deduction for the cost of goods sold or other expenses incurred that contributes to the production of gross income of the person including the fair market value of any property and any services received and any debt transferred or forgiven as consideration 3 like the above definitions of gross receipts are given by other tax authorities that use them as a taxation basis for businesses detailed lists of exclusions to gross receipts are also provided | |
gross sales measures a company s total sales without adjusting for the expenses of generating those sales the gross sales formula is calculated by totaling all sale invoices or related revenue transactions however gross sales do not include operating expenses tax expenses or other charges which are all deducted to calculate net sales | gross sales formulathe gross sales figure is calculated by adding all sales receipts before discounts returns and allowances together the formula for gross sales is a simple equation that helps businesses calculate their total revenue before any deductions gross sales sum of all sales total units sold x sales price per unit let s consider a hypothetical tech company techxyz in a quarter it sells 10 000 units of its flagship product at 200 each applying the formula gross sales we get the following gross sales 10 000 units x 200 unitgross sales 2 000 000so the gross sales of techxyz for that quarter is 2 000 000 before considering business expenses deductions discounts returns and allowances | |
what gross sales can tell you | gross sales can be important especially for retail stores but it is not the final word on a company s revenue it reflects a business s total revenue during a specific period but does not account for all the expenses accrued this is why gross sales are not typically listed on an income statement or listed as total revenue net sales reflect a truer picture of a company s top line nevertheless analysts often find it helpful to plot gross sales net sales and the difference between both figures to determine how each value trends over a period if the difference between gross and net sales increases over time this could indicate trouble with product quality this is because it suggests an unusually high volume of sales returns discounts or allowances these figures should be watched to determine their meaning example of how to use gross salesmost companies don t provide gross sales in their publicly filed financial statements instead it s generally used as an internal number for example companies like dollar general corp dg or target corp tgt are well known retailers however they offer discounts and experience product returns these companies and many others choose not to report gross sales instead they present net sales on their financial statements net sales already have discounts returns and other allowances factored in gross sales vs net salesgross sales are the total sales transactions within a specific period for a company net sales are calculated by deducting sales allowances sales discounts and sales returns from gross sales 1net sales reflect all customer price reductions discounts on goods and any refunds paid to customers after the sale these three deductions have a natural debit balance while the gross sales account has a natural credit balance thus the deductions are constructed to offset the sales account limitations of using gross salesgross sales are generally only significant to companies in the consumer retail industry reflecting the amount of a product a business sells relative to its major competitors a company may decide to present gross sales deductions and net sales on different lines within an income statement however this is generally more confusing so net sales are typically the only value presented the figure can be misleading when gross sales are presented on a separate line because it tends to overstate sales and inhibits readers from determining the total of the various sales deductions | |
is gross sales misleading about a company s performance | yes if used alone gross sales can be misleading because it doesn t consider crucial factors like profitability net earnings or cash flow | |
how can gross sales be used effectively in financial analysis | gross sales is best used when linked with other relevant financial metrics such as net sales and profit margins to provide a comprehensive view of a company s financial health | |
is gross sales the same as gross revenue | in most contexts gross sales and gross revenue are interchangeable since both represent the total sales before any deductions |
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