[dfranke]

Here's how it works:

Revenue = everything your customers pay you.

Cost of revenue = expenses that scale up directly with revenue. For a manufacturing company, this would typically consist mainly of what they pay to their suppliers. In Google's case, power and bandwidth are major items.

Gross profit = Revenue - cost of revenue

Operating expenses = costs that aren't directly tied to revenue, such as payrolls and building leases. Operating expenses also include depreciation of capital assets, the computation of which is somewhat of a black art.

Operating profit = Gross profit - operating expenses.

Net profit = Operating profit +/- any profit or loss on investing activities, including interest on any money the company has borrowed or lent.

(Disclaimer: IANAA)

[ww520]

Excellent concise explanation.