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Gross profit margin

Method of calculation

Formula for gross profit margin: gross profit on sales / net revenues from sales * 100%

Ratio's description

This ratio allows to estimate the relationship between the gross profit on sales and the net revenues from sales. Consequently it allows to estimate which part of the net revenues from sales is used to cover the costs of sold products, goods and materials (operating costs).

Ratio's interpretation

  • The greater the ratio's value, the greater the sales profitability, since the costs of basic operating activities consume smaller part of the net revenues from sales.
  • When assessing the changes in ratio's value over time (over few periods):
    • the increase of ratio's value is assessed positively and interpreted as an improvement of profitability,
    • the decrease of ratio's value is assessed negatively and interpreted as a deterioration of profitability

       

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