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Gross Profit is a clear indicator of the success of an enterprise in making money
The difference between Income and Costs shows the surplus money that will be available after all that income has been collected and all of the costs paid for
In practice there is generally a time delay involved. If yours is a cash only business then your income will already be in the bank but quite often your expenditure will lag on the date that you look at the Gross Profit. Again, for credit sales, there will be a delay before the money indicated by the income is collected
So care must be taken in interpreting the Gross Profit figures - it does not represent the money that can be spent at that time. A committment to spend that money by way of Expenses or Investment must be made with care and there must be sufficient cash available for that expenditure when it is needed. This needs a continuous monitoring of Cash Flow which involves knowing where the cash is at all times, especially in the future
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Last Update 08-Jan-2012
Date first published 03-Jan-2011