Formula to calculate gross
margin ratio:
Gross Profit Margin Ratio = gross profit /
sales.
Gross
margin ratio definition and explanation:
Gross profit margin ratio is also called gross margin
ratio.
To
calculate gross
profit subtract cost of sales (variable costs) from
sales. (i.e. gross profit = sales - cost of sales)
A low gross profit margin ratio (or gross margin
ratio) indicates that low amount
of earnings, required to pay fixed costs and profits,
are generated from revenues.
A low gross profit margin ratio (or gross margin ratio) indicates
that the business is unable to control its production
costs.
The gross profit margin ratio (or gross margin
ratio) provides clues to the
company's pricing, cost structure and production
efficiency.
The gross profit margin ratio (or gross margin
ratio) is a good ratio to benchmark
against competitors.
The gross profit margin ratio (or gross margin
ratio) is
included in the financial statement ratio analysis
spreadsheets highlighted in the left column, which
provide formulas, definitions, calculation, charts and
explanations of each ratio.
The gross profit margin ratio is listed in our profitability
ratios.
The gross profit
margin ratio and other ratios are key
to understanding financial statements. Our
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Spreadsheets to
calculate ratios (includes formulas, definitions,
explanations and charts):
See list
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analysis spreadsheets which are not highlighted in the
left column, to see which other ratios our spreadsheets
calculate, define and explain.
The gross profit margin or
gross margin ratio may be included in our
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statement ratio analysis spreadsheet.
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