Introduction to Expanded Profit and Loss Statement: Calculating the P & L Components

Welcome to the (Section 2, Part 3): Expanded Profit and Loss Statement: Calculating the P & L Components course. This course expands information about the major components and provides added knowledge about the contents within those components:


  • Gross Sales and Reductions provide a detailed explanation for the calculation of Net Sales.
  • Total Cost of Goods Sold depicts the impact of transportation and insurance costs on the bottom line of cost of goods.
  • Maintained Markup addresses the affect of alterations and cash discounts on Gross Margin.
  • Direct and indirect operating expenses delineate the Contribution Margin as well as the impact of specific expense categories on the operating profit.


We recommend printing off the course content reference guide via the button below to assist you in the Manipulating Profit Variables: Merchandising for a Profit courses. 


Gross Sales

The formula for calculating customer return rate percent is:

Customer Return Rate % = Customer Returns + Allowances $ ÷ Gross Sales $


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Reduction $ = Customer Returns & Allowances + Employee Discounts + Markdowns +  Shrinkage


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Total Costs of Goods Sold

Cost of Goods Sold $ = Invoice Cost $ + Transportation $ (including insurance)+ Alterations $ – Cash Discount $


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Maintained Markup

Maintained Markup $ = Net Sales $ – Gross Cost of Goods Sold $


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Gross Margin and Contribution Margin

Gross Margin $ = Net Sales $ – (Invoice Cost of Goods $ +Transportation $ + Alterations $ – Cash Discount $)


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Gross Margin Return on Investment (GMROI) is the interrelationship of gross margin, turnover, and markup percent. It is a financial performance measure utilized to keep a check on the retailer’s bottom line. In today’s highly competitive marketplace, the retailer attempts to produce more profit by increasing sales on less inventory. If the retailer can reach or increase planned sales volume on “lean” inventories, then gross margin will increase. GMROI measures the amount of gross margin dollars produced per dollar of average inventory invested by the retailer.


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