Video:What Is Gross Profit Margin?with Joshua Kennon
Gross profit margin measures a company's efficiency and can be a very important figure for investors. Learn more about gross profit margin, including how to calculate it.See Transcript
Transcript:What Is Gross Profit Margin?
What Is Gross Profit Margin?The gross profit margin is a measurement of a company's manufacturing and distribution efficiency during the production process. The gross profit tells an investor the percentage of revenue/sales left after subtracting the cost of goods sold.
A company that boasts a higher gross profit margin than its competitors and industry is more efficient. Investors tend to pay more for businesses that have higher efficiency ratings than their competitors, as these businesses should be able to make a decent profit as long as overhead costs are controlled (overhead refers to rent, utilities, etc.)
How to Calculate Gross Profit MarginThe formula to calculate gross profit margin is: Gross Profit ÷ Total Revenue
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