What is Gross Profit Margin?
A financial metric used to assess a firm’s financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for paying additional expenses and future savings.
Also known as “”gross margin”".
Calculated as:
Where:
COGS = Cost of Goods Sold Read more for examples and further explanation including related video clips and also comments
Example explains Gross Profit Margin
For example, suppose that ABC Corp. earned $20 million in revenue from producing widgets and incurred $10 million in COGS-related expense. ABC’s gross profit margin would be 50%. This means that for every dollar that ABC earns on widgets, it really has only $0.50 at the end of the day.
This metric can be used to compare a company with its competitors. More efficient companies will usually see higher profit margins.
