Wednesday, 2 January 2019

Gross Profit Margin Formula

Gross Profit Margin Formula

A Gross Profit Margin or gross profit Margin is a profitability ratio use to calculate the percentage of the excess income gross profit sales. Gross Profit or gross profit in question here is the sales income is reduce by the cost of goods sold (HPP).

The costs are include in cost of goods sold (HPP) or the Cost of Goods Sold (CGS) finger as raw materials and labor directly related to the manufacture of a product. In other words, the ratio of gross profit Margin or Gross Profit Margin is use to measure how efficient the company uses materials and workforce to produce and sell its products to generate profits.

Gross profit margin or Gross Profit Margin is an important indicator because it can provide information to Management and investors about how business activities perform fortunately by a company without a take into account the indirect costs. Gross profit margin can also give insight to investors about the company's health level.

How to Calculate Gross Profit Margin (Gross Profit Margin)

The following is the formula for calculating Gross Profit Margin or gross profit Margin and a sample case calculation.

The Formula Gross Profit Margin (Gross Profit Margin)

To get the gross profit Margin, we need to get the first results to Profit, gross profit or Gross Profit is the Total sales revenue minus the cost of goods sold (HPP).

Gross Profit = Sales Revenue – Cost of Goods Sold

After getting the gross profit or Gross Profit, next is doling out gross profit (Gross Profit) with total sales revenue (Sales Revenue).

Gross Profit Margin = Gross Profit/Sales Revenue


Cost of goods sold (HPP) or the Cost of Goods Sold (COGS) is the whole of the costs incur to produce goods sold or the price of acquisition of the goods sold. The costs include costs such as HPP-forming raw materials, direct labor costs and overhead costs.

Sales income or Sales Revenue is the amount of money receive by the company from the sale of products or services to its customers.

An Example of the Calculation of Gross Profit Margin (Gross Profit Margin)

XYZ is a company that produces uniform. Total sales uniform in 2016 is $ 400 million, while the cost of goods sold (HPP) is $ 150 million. What is the Gross Profit margin of Profit margins or Dirty?


Sales revenue = $. 400 million,
Cost of goods sold (HPP) = USD 150 million,
= Gross profit Margin?

Calculate Gross Profit (Gross Profit)

The gross profit = sales revenue – cost of goods sold
gross profit = $ 400 million – $ 150 million
gross profit = $. 250 million

Calculating Gross Profit Margin (Gross Profit Margin)

Gross profit margin = gross profit/sales income
Margin = gross profit of $. 250 million,-/USD 400 million,-
gross profit Margin = 62.5%

The percentage of gross profit Margin shows that organization have 62.5% of revenue remaining after paying. The costs directly associate with the production of uniform (uniform cost of goods sold). The gross profit of $. 250 million. This is money left that can be use to pay for operating expenses, interest, taxes, debt payments, payment of dividends and other purposes.

Assessment of gross profit Margin (Gross Profit Margin)

Companies that have a high gross profit Margin indicates that the company is capable. To run efficiently because of its cost of goods sales are relatively low. When compare to the sales, the higher the margin profit to the better the State of its business operations.

In contrast, low gross profit Margin indicates that the company concern is less capable of being able. To control the costs of production and sales rates, the lower the profit margin. To increasingly unfavorable operating state his company.

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