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Gross Profit Margin
The gross profit margin measures how well a company is managing its cost of goods sold.
Interpreting the Ratio
- Measures what percentage of its sales revenue remains after accounting for the cost of sales.
- A higher ratio means the company is capable of maintaining a selling price that is adequately higher than the cost of its sales.
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Profit Margin
The profit margin measures the company's ability to control all of its expenses.
Interpreting the Ratio
- Measures what percentage of net sales remains in net income after accounting for all expenses.
- A high ratio indicates that the company is doing a good job at controlling its costs.
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Example: Profit Margin and Gross Profit Margin
Compute the profit margin and gross profit margin.
Practice: Profit Margin and Gross Profit Margin
Compute the gross profit margin and profit margin for the year 2020. Do not round your work, round your final answer to 4 decimal places and enter you answer in decimal form.
