Quick Definition
Gauges how much profit a company is extracting out of every dollar of sales.
Gross Profit Margin Formula
Explanation of Gross Profit Margin
The Gross Profit Margin measures the
Gross Profit in relation to the
Net Sales. This will reveal how much profit remains out of each dollar of sales. For example a Gross Profit Margin of 0.23 (23%) means that for each dollar of sales, 23% of that dollar is Gross Profit to the company.
Importance of Gross Profit Margin
The higher the Gross Profit Margin, the better the company is able to control costs - either by reducing the costs of production of their products or services, or passing some of the costs to the customer.
