Determining gross profit margin is a simple calculation with the option to calculate margin using a dollar amount or a percentage. In addition to gross profit, gross margin can also be used as a percentage of net sales, which in business lingo is commonly known as gross profit percentage or gross margin ratio. What is the Gross Margin Ratio? More about gross margin. Gross profit margin (gross margin) is the ratio of gross profit (gross sales less cost of sales) to sales revenue. The gross margin must cover the expenses of making sales, operating the business, and paying interest and income tax expenses, so that there is an adequate amount left over for profit. Gross profit margin, also known as gross margin, is a financial metric that indicates how efficient a business is at managing its operations. Gross profit margin ratio = (15,000 -10,000) / 15,000 = 33%. Gross Profit Margin Ratio Analysis. The gross margin ratio is the proportion of each sales dollar remaining after a seller has accounted for the cost of the goods or services provided to a buyer. For example, drawing from financial results posted on the Fidelity website, Starbucks (SBUX) has this history of gross margin and gross margin ratio: 2013: Sales = $14,892; Cost of Goods Sold = $11,126 On a monthly revenue of $40,000 and COGS of $25,000, your gross margin is the $15,000 gross profit divided … A good gross profit margin is enough to cover overhead and leave a reasonable net profit. The gross profit margin (also known as gross profit rate, or gross profit ratio) is a profitability measure that shows the percentage of gross profit in comparison to sales.In other words, it calculates the ratio of profit left of sales after deducting cost of sales. Calculation: Gross profit margin = Gross profit / Revenue. Gross margin ratio is an important metric for your business. Number of U.S. listed companies included in the calculation: 3984 (year 2019) . It is a ratio that indicates the performance of a company's sales based on the efficiency of its production process. In conclusion, for every dollar generated in sales, the company has 33 cents left over to cover basic operating costs and profit. The gross margin ratio is the gross margin (also called gross profit or loss) divided by sales. Gross margin is a simple financial ratio that shows how much of your periodic revenue is left after you subtract costs of goods sold, or COGS. The gross profit margin formula. Easily calculated, gross margin ratio provides you with a quick snapshot of profitability. Ratio: Gross margin Measure of center: Some industries, such as retail jewelry stores, have gross profit margins exceeding 50 percent, while others, such as grocery stores, might average less than 30 percent. You calculate the gross margin ratio as follows: Gross margin ÷ Sales revenue = Gross margin ratio. 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