Asked by: Longino Boekhoff
asked in category: General Last Updated: 25th April, 2020

How do you interpret gross margin ratio?

The ratio indicates the percentage of each dollar of revenue that the company retains as gross profit. For example, if the gross margin is calculated to be 20%, that means for every dollar of revenue generated, $0.20 is retained while $0.80 is attributed to the cost of goods sold.

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In this way, what does the gross margin ratio tell us?

Gross margin ratio is a profitability ratio that compares the gross margin of a business to the net sales. This ratio measures how profitable a company sells its inventory or merchandise. In other words, the gross profit ratio is essentially the percentage markup on merchandise from its cost.

Also Know, what does the gross profit margin tell you? Gross profit margin is a metric used to assess a company's financial health and business model by revealing the amount of money left over from sales after deducting the cost of goods sold. The gross profit margin is often expressed as a percentage of sales and may be called the gross margin ratio.

Thereof, how do you interpret gross profit margin ratio?

Compared with industry average, a lower margin could indicate a company is under-pricing. A higher gross profit margin indicates that a company can make a reasonable profit on sales, as long as it keeps overhead costs in control. Investors tend to pay more for a company with higher gross profit.

How do you explain gross profit ratio?

Gross profit ratio (GP ratio) is a profitability ratio that shows the relationship between gross profit and total net sales revenue. It is a popular tool to evaluate the operational performance of the business . The ratio is computed by dividing the gross profit figure by net sales.

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