Gross profit margin ratio

Definition

Gross profit margin ratio measures the percentage of revenue that exceeds the cost of goods sold. It indicates how efficiently a company uses its labor and supplies in the production process.

5 Must Know Facts For Your Next Test

1. Gross profit margin ratio is calculated by dividing gross profit by net sales and multiplying by 100.
2. A higher gross profit margin ratio suggests better efficiency and profitability.
3. Gross profit is determined by subtracting the cost of goods sold from net sales.
4. This ratio does not account for operating expenses, taxes, or interest.
5. It is crucial for comparing performance across different periods or with other companies in the same industry.

Related terms

NetSales: Total revenue from sales minus returns, allowances, and discounts.

CostOfGoodsSoldCOGS: Direct costs attributable to the production of goods sold in a company.

OperatingExpenses: Costs required for a company to run its day-to-day operations, excluding COGS.