Gross profit margin

Gross Profit Margin

A financial metric that shows the percentage of revenue remaining after deducting the cost of goods sold, calculated by dividing gross profit by revenue and multiplying by 100.

For instance, a retailer with $1 million in sales and $600,000 in cost of goods sold would have a gross profit margin of 40% [($1,000,000 - $600,000) ÷ $1,000,000 × 100].

Gross profit margin indicates how efficiently a company uses its resources to produce its goods or services. Higher margins suggest better efficiency, stronger pricing power, or more favorable supplier arrangements. This metric varies significantly by industry, making cross-industry comparisons less meaningful than tracking trends within a company or comparing with direct competitors. Declining margins may signal pricing pressure, increasing costs, or inventory management issues requiring management attention.