The Gross Profit Method Formula is an accounting tool used to estimate a company’s inventory based on the difference between its cost of goods sold and sales. It starts with the assumption that a company’s gross profits (the amount of money it makes from sales) are equal to the total cost of the goods it has sold during a certain period. By dividing this number by the sales price of each item, businesses can calculate their average gross profit margin and then use that number to estimate their current inventory. With this method, companies can get an accurate picture of their inventory without having to physically count or measure it.