In calculating the gross profit margin, all you have to do is to calculate the gross profit and net sales. The GPM percentage can also show how much money is available to fund vital parts of the business. They can cover employees’ payroll, rent, and utilities with more money. Service companies use the cost of revenue instead of the cost of goods sold.Ī higher gross profit margin ratio indicates that a company has a lot of money left to pay for its operational expenses. It tells the business owners how profitable the goods or services are after taking into account the cost of goods sold (COGS). The Gross profit margin ratio measures the business’s efficiency in using labor and materials to produce their goods. Gross profit margin, or GPM, is one of the first financial metrics businesses compute to analyze their sales.
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