Gross Profit Margin

Gauges how much profit a company is extracting out of every dollar of sales.

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.

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.

Tags: Financial Ratio