Can a business earn a gross profit but incur a net loss? Explain.

Asked on by linnie4352

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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If you are using the same definitions that I am aware of, yes, it is possible.  This is because a gross profit does not take into account various kinds of costs that would be accounted for when figuring net profits and losses.

Specifically, gross profit generally only refers to the difference between the revenue you get for selling the product and the costs that were directly associated with making the product (like the cost of the parts that went into it).  You do not take into account things like fixed costs (overhead) when figuring gross profits.

Therefore, you can certainly have a gross profit but then have a net loss once you subtract out things like overhead that are not taken into account when calculating gross profit.

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