Gross Profit

Revenue minus cost of goods sold equals gross profit: the dollars left after paying for the product itself, before any operating cost. Everything below it on the income statement — R&D, marketing, interest, taxes — gets paid out of this pool.

The dollar figure and the margin answer different questions. Gross margin (gross profit as a percent of revenue) measures pricing power and unit economics; gross profit dollars measure the size of the pool available to fund growth. A company can hold a 60% margin while gross profit dollars stall — great unit economics on flat revenue still leaves nothing new to spend.

Gross profit is also the cleanest line for valuing unprofitable growth companies: price-to-gross-profit corrects for the huge margin differences that make price-to-sales comparisons misleading.