Gross profit, or gross margin, is a key performance indicator when it comes to assessing a business’ profitability. In accounting terms, it’s the difference between sales and the cost of goods sold (COGS), calculated using First-In/First-Out (FIFO). FIFO assumes that the oldest inventory items purchased or manufactured are sold or used first. This method allows businesses to accurately calculate their total costs and remain competitive with regards to pricing. By carefully tracking their gross profit margins, businesses can monitor how efficiently they use their resources to sell products and identify areas for improvement.