The term ‘gross’ is used in numerous ways in business, finance, and accounting. This article’s purpose is to explain some of the usages of this term in accounting, finance, and business, by answering the questions regarding some of the terms used.
What is the gross debt service ratio?
The gross debt service (GDS) ratio refers to the percentage of a borrower’s gross income required to qualify for a mortgage loan. Although mainly used with regard to mortgage loans, it can also be used when a personal loan is considered.
The GDS ratio is calculated by adding all your related housing costs, such as levies, utilities, and mortgage payments, and divide it by your gross monthly income. Then multiply the sum by 100.
Generally, an acceptable GDS ratio is 33% or less. However, some lenders prefer a GDS ratio of 28% or less.
Other terms for the GDS ratio are:
- housing expense ratio
- debt servicing ratio
- front-end ratio
What are gross dividends?
Gross dividends refer to the sum total of all dividends received by a shareholder on his or her shares in a company, prior to the deduction of taxes, fees, and other related expenses.
A dividend[1] is a portion of a company’s profits and retained earnings that a company pays out to its shareholders.
In South Africa, dividends tax is applicable to dividends received as income. Companies distributing dividends to shareholders are obliged to deduct the dividends tax from the amount of the dividends before it is paid to a shareholder. Dividends tax is called dividends withholding tax (DWT). (DWT is 20% for the current tax year (2020/2021), as well as for the previous tax year (2019/2020).
Therefore, the dividends eventually received on shares in South African registered companies are net dividends.
What is gross domestic income (GDI)?
Gross domestic income (GDI) measures a country’s economic activity based on all the income received while producing all the goods, rendering all the services, and participating in anything else that accounts for the economy of a country.
GDI comprises, among others, wages, profits, taxes, and interest, minus subsidies.
Put in other words, GDI measures the income that was paid to generate gross domestic product (GDP).
What is gross domestic product (GDP)?
Gross domestic product (GDP) refers to the total market value of all finished goods made and services provided by citizens as well as non-citizens within a country during a given period of time.
Contrary to gross national product (GNP) that measures a country’s economic strength based on nationality, GDP is a measure of a country’s economic strength based on location.
GDP is an indication of a country’s economic health and economic growth rate.
GDP includes the final value of goods, but not the parts used to manufacture the products.
There are two types of GDP:
- Nominal GDP is a country’s GDP in which current prices are included. Hence, excluding the effect of inflation.
- Real GDP is an inflation-adjusted figure.
A country’s GDP comprises four components, namely:
- personal consumption expenditures
- business investments
- government spending
- net exports (exports less imports)
What is a gross estate?
A gross estate is the total value of the property, also referred to as possessions, owned by a person at the time of his or her death.
The term gross estate excludes any liabilities such as debt and taxes like estate duty.
Examples of possessions are houses, land, vehicles, investments, bank accounts, paintings, furniture, computers, and jewellery, to name a few.
What is gross income?
- Regarding individuals, gross income refers to the total income earned by a person from wages or a salary, and other types of income such as dividends, interest, pensions, annuities, and rent over a given period of time.
It is the total of income before deductions and taxes.
- Concerning a business, gross income, also called gross profit or gross margin, is the gross revenue of a business less the direct costs involved in the producing of goods and/or the rendering of services, known as cost of goods sold (COGS).
The gross income of a business occurs on the income statement before the deduction of operational expenses and taxes.
What is gross margin?
In business, gross margin is a synonym for gross income. Refer ‘What is gross income?’ above.
What is gross national income (GNI)?
Gross national income (GNI) refers to the income earned locally and abroad by the residents and businesses of a country, indicating a country’s wealth from year to year.
GNI can be calculated by deducting the income earned by foreigners from a country’s GDP and adding income earned abroad by its residents.
What is gross national product (GNP)?
Gross national product (GNP) measures all the domestic and foreign output of a country’s residents within a specific time period. Put differently, GNP is an indication of a country’s economic health, based on nationality.
In contrast, gross domestic product (GDP) measures the magnitude of a country’s economy based on location.
What is gross profit?
Gross profit is similar to the gross income or gross margin of a business, indicating the money a business generates after deducting the costs directly involved in producing goods and/or rendering services.
What is gross profit margin?
Gross profit margin is a financial ratio that measures a business’s profitability. It is an indication of the amount of revenue (sales) of a business remaining in a given financial period after the cost of goods sold (COGS) are deducted.
The formula to calculate the gross profit margin is:
Gross profit margin = (Net sales – Cost of goods sold)/Net sales
The sum of the calculation is usually multiplied by 100 to indicate the gross profit as a percentage of net sales.
What is gross revenue?
Gross revenue, also called gross sales, is recorded as the top line in the income statement of a business. It reflects the total sales before the deduction of any costs.
What is gross working capital?
Gross working capital refers to the current assets of a company that are considered to be converted into cash (liquidated) within a year or less.
Current assets include cash, cash equivalents, accounts receivable, and inventories.
[1] See the article, ‘Dividends Explained for Dummies,’ for more information about dividends.
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