Gross Profit Margin

Gross Profit Margin (Definition)

Gross profit margin is a financial metric used to assess a companys financial health and business model by revealing the proportion of money left over from revenues after accounting for the cost of goods sold.

Key aspects of gross profit margin include:

1. Calculated as (Revenue - Cost of Goods Sold) / Revenue, expressed as a percentage
2. Indicates the efficiency of a companys production process and pricing strategy
3. Higher margin generally indicates better profitability and competitive advantage
4. Can vary significantly between industries
5. Used to track a companys performance over time and compare with competitors
6. Important for pricing decisions and cost management strategies
7. Does not account for operating expenses, taxes, or other costs

Understanding and monitoring gross profit margin is essential for managing profitability and assessing business performance.