| gross profit margin A measure calculated by dividing gross profit by net sales. Gross profit margin is an indication of a firm's ability to turn a dollar of sales into profit after the cost of goods sold has been accounted for. Also called gross margin, margin of profit. Compare net profit margin. See also return on sales. |
What Does Gross Profit Margin Mean?
A financial metric used to assess a firm's financial health by revealing the proportion of revenues left over 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. It is calculated as follows:
Where COGS = cost of goods sold.
Investopedia explains Gross Profit Margin
As an example, suppose 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 earned, its profits were $0.50 at the end of the day. This metric is useful in comparing like companies, and companies that are operating more efficiently usually show higher profit margins.
Related Terms:
• Contribution Margin
• Cost of Goods Sold—COGS
• Gross Margin
• Operating Income
• Revenue
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