What does gross profit specifically exclude in its calculation?

Gross profit is calculated as sales revenue minus the cost of goods sold (COGS). This key financial metric focuses on the profit a company makes from its core business activities, specifically the sale of goods or services, without considering other expenses or financial activities.

In this calculation, operating expenses are excluded because they encompass costs not directly tied to the production of goods or services, such as administrative expenses, marketing, and rent. These expenses are accounted for later in the income statement after gross profit has been determined, when calculating operating income and net income. Thus, understanding that gross profit specifically excludes operating expenses is crucial for analyzing a company's operational efficiency and profitability.