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What is Gross profit margin?

Gross profit margin (Definition)

The gross profit margin is a measure of your company's gross earnings, after paying for things like labour, materials, and other direct costs associated with the production of goods and services. Gross profit margin is typically reported as a percentage of sales. Net sales are divided by direct expenses or cost of goods sold, to arrive at the gross profit margin. The gross profit margin ratio is then calculated by dividing that amount by net revenues and multiplying it by 100 percent. A high gross profit margin is essential in business for long term operations, and it means the company’s executive management are generating money efficiently. The gross profit margin only differs from the gross profit in that it is displayed as a percentage, rather than a dollar figure.

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