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
- 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.