What is calculated by subtracting the cost of goods sold from revenue?

The correct choice is linked to a fundamental concept in financial analysis known as gross margin, which is calculated by taking total revenue and subtracting the cost of goods sold (COGS). This figure reflects the profitability of a company in relation to its direct production costs, highlighting how much money remains after covering these costs, which can then be used for operating expenses, taxes, interest, and other financial obligations.

Gross margin is an important metric because it indicates the efficiency of a company in managing its production costs relative to its sales, showing how effectively it can generate profit from its sales before overhead costs are considered. A higher gross margin means that the company retains more money from each sale after accounting for the direct costs of goods sold, which is key for assessing financial health and operational efficiency.

In contrast, operating income is derived from gross margin after deducting operating expenses, while net income is calculated after accounting for all expenses, including non-operating ones such as taxes and interest. EBITDA represents earnings before interest, taxes, depreciation, and amortization, which is another measure of profitability but does not focus solely on the relationship between COGS and revenue.