What Is the Gross Profit Margin? What Does the Gross Profit Margin Tell Us?
Gross profit margin is calculated by taking gross profit as a percentage of revenue. It tells investors what percentage of revenue a company turns into gross profit, and by extension how profitable creating their product or providing their service is. Generally, the larger this number is, the better.
For example, if you sold 10 widgets for $10 each, but each widget cost you $6 to make, you had $100 in revenue, $60 in cost of goods sold, $40 in gross profit, and a 40% gross profit margin ($40 / $100 is .4, then converting that to a percent yields 40%).
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Published: 6/03/2021
