(v6000.00) Gross Profit Margin

The profitability ratio tells you what proportion of Sales (Net) (v1030) is included in Gross Profit (v1070). The ratio is calculated as follows:

Gross Profit (v1070.00)
Sales (Net) (v1030.00)

Changes in the Gross Profit Margin can result from an increase or decrease in one or both of these factors:

  • Sales (Net) (v1030.00)

  • Cost of Goods Sold (v1040.00)

In evaluating which factors affect the Gross Profit Margin (v6000.00), determine which factors affect the future margin. For example, if the Gross Profit Margin (v6000.00) recently improved because of a Cost of Goods Sold (v1040) reduction, try to determine whether that margin can be sustained at even greater sales volumes. The drop in Cost of Goods Sold (v1040) may be due to a onetime change in depreciation policy or a switch from FIFO to LIFO.