# Gross Profit Margin Interpretation

### What is Gross Profit Margin

Gross profit margin is a key financial indicator used to asses the profitability of a company's core activity, excluding fixed cost.

Gross profit margin formula is:

 $Gross profit margin formula$

Gross profit margin measures company's manufacturing and distribution efficiency during the production process. It is a measurement of how much from each dollar of a company's revenue is available to cover overhead, other expenses and profits.

### Gross Profit Margin Analysis

The ideal level of gross profit margin depends on the industries, how long the business has been established and other factors.

High gross profit margin indicates that the company can make a reasonable profit, as long as it keeps the overhead cost in control.

Low gross profit margin indicates that the business is unable to control its production cost.

Gross profit margin can be used to compare a company with its competitors. More efficient firms will usually see a higher margin. Also, it provides clues about company's pricing, cost structure and production efficiency. Therefore, gross profit margin can be used to compare company's activity over time.

For most of the businesses, gross profit margin is affected by seasonality. Generally, in the good months, this margin is higher than in the slower months, when the company may use sales and other marketing tools to attract more customers.

Gross profit margin should be analyzed along with operating margin, which asses the profitability after including fixed cost and net profit margin, which asses the profitability after including fixed cost, interest expenses and taxes.

Input

Note: Gross Profit Margin calculator uses JavaScript, therefore you must have it enabled to use this calculator.

Results

Gross profit margin calculator measures company's manufacturing and distribution efficiency during the production process, the profitability of its core activity. Gross profit margin formula is:

 $Gross profit margin formula$

Gross Profit Margin calculator is part of the Online financial ratios calculators, complements of our consulting team.

1. Complementarily, in order to calculate Gross Profit Margin for your business, we offer a calculator free of charge.
2. You may link to this calculator from your website as long as you give proper credit to C. C. D. Consultants Inc. and there exists a visible link to our website.
To link to our Gross Profit Margin Calculator from your website or blog, just copy the following html code:

<a href="http://www.ccdconsultants.com/calculators/financial-ratios/gross-profit-margin-calculator-and-interpretation">Gross Profit Margin Calculator and Interpretation</a>
3. Although C. C. D. Consultants Inc.'s personnel has verified and validated the Gross Profit Margin calculator, C. C. D. Consultants Inc. is not responsible for any outcome derived from its use. The use of Gross Profit Margin calculator is the sole responsibility of the user and the outcome is not meant to be used for legal, tax, or investment advice.

### Definitions and terms used in Gross Profit Margin Calculator

Net Sales
The amount of revenue generated by a company after the deduction of returns, allowances for damaged or missing goods and any discounts allowed.
Net sales = Gross sales - Sales returns and allowances
Cost of Goods Sold (COGS)
The direct cost attributable to the production or purchasing of the goods sold by a company. It is also referred as Cost of sales.
Gross Profit
The difference between Net Sales and its Cost of Goods Sold, before deducting overhead, payroll, taxes, interest and other operating expenses.
Gross profit = Net sales - Cost of Goods Sold