What is the formula for gross profit margin?

What is the formula for gross profit margin?

• A. = (gross profit / sales) x 100%
• B. = (net profit / sales) x 100%
• C. = (operating profit / sales) x 100%
• D. = capital employed / sales x 100%

Answer: (A)

This margin shows how much of every sales dollar is left after covering the cost of producing the goods. It is calculated as gross profit divided by sales, multiplied by 100%. Gross profit is sales minus cost of sales. For example, if sales are 100,000 and cost of sales are 60,000, gross profit is 40,000 and the gross profit margin is 40,000 / 100,000 = 40%. The other options refer to different measures: net profit margin uses net profit (after all expenses), not just the cost of sales; operating profit margin uses operating profit (before interest and taxes); and a ratio with capital employed in the numerator is not a margin of sales profitability.

This margin shows how much of every sales dollar is left after covering the cost of producing the goods. It is calculated as gross profit divided by sales, multiplied by 100%. Gross profit is sales minus cost of sales. For example, if sales are 100,000 and cost of sales are 60,000, gross profit is 40,000 and the gross profit margin is 40,000 / 100,000 = 40%.

The other options refer to different measures: net profit margin uses net profit (after all expenses), not just the cost of sales; operating profit margin uses operating profit (before interest and taxes); and a ratio with capital employed in the numerator is not a margin of sales profitability.