Gross profit margin

A financial metric used to assess a firm's financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for paying additional expenses and future savings.

Also known as "gross margin".

Calculated as:



Where:
COGS = Cost of Goods Sold

Investopedia Says:
For example, suppose that ABC Corp. earned $20 million in revenue from producing widgets and incurred $10 million in COGS-related expense. ABC's gross profit margin would be 50%. This means that for every dollar that ABC earns on widgets, it really has only $0.50 at the end of the day.

This metric can be used to compare a company with its competitors. More efficient companies will usually see higher profit margins.

Related Links:
Learn this easy-to-understand technique of analyzing a company's financial statements and reports. Introduction To Fundamental Analysis
Take a deeper look at a company's profitability with the help of profit-margin ratios. The Bottom Line On Margins
Read up on some ratios that test whether a company is strong enough to survive tough times. Do Your Investments Have Short-Term Health?

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Gross profit margin is a financial ratio used to assess the profitability of a firm's core activities, excluding fixed costs. It is a measure of how well each dollar of a company's revenue is available to meet expenses and profits after paying for the goods or services that were sold.^[1]

The general calculation is:

The gross profit margin is related to the net profit margin, which assesses the profitability of an organization after including fixed costs.

Gross profit margin indicates the relationship between net sales revenue and the cost of goods sold. A high gross profit margin indicates that a business can make a reasonable profit on sales, as long as it keeps overhead costs in control.

Gross profit percentage is (gross profit / sales revenue) x 100.

See also

• Gross profit

• Revenue

References

1. ^ Berman, Karen (2006). Financial Intelligence. Boston: Harvard Business School Press. p. 152. ISBN 1591397642. 

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