## Answers the Question

How much are we making for each dollar's worth of items sold?

## Calculator for Gross Profit Ratio

## What Is the Gross Profit Ratio?

The gross profit ratio examines the efficiency of a firm's operations without concerning itself for the magnitude of sales.

## Why Is it Important?

- By eliminating any information about the magnitude of sales, firms of different sizes can be compared to each other in a direct manner.

## Formula(s) to Calculate Gross Profit Ratio

- GROSS PROFIT RATIO = GROSS PROFIT / NET SALES

## Common Mistakes

- Assuming that a very high gross profit ratio is all that is required to determine the quality of a firm. Businesses that are very small and do not scale well may have excellent ratios, yet yield little in the way of profit or opportunities for further growth.