Gross profit margin is one of the important indicators that help businesses evaluate financial stability. Let’s learn the article below with MISA meInvoice to better understand what gross profit margin is? How is gross profit margin calculated?
Table of Contents Hide
1. Gross profit margin overview
1.1. What is gross profit margin?
1.2. What is gross profit margin used for?
1.3. Distinguish between gross profit margin and net profit margin
2. Factors affecting gross profit margin
3. How to calculate gross profit margin in business
4. How to evaluate a good gross profit margin?
4.1. GPM remains stable
4.2. GPM has growth
4.3. GPM higher than industry average
5. Strategy to increase gross profit margin for business
5.1. Increase net revenue
5.2. Reduce input production costs
5.3. Expanding production and business scale
1. Gross profit margin overview
1.1. What is gross profit margin?
Gross Profit Margin (GPM) is the percentage of a company’s revenue retained after deducting direct costs such as labor and materials. This is an indi 2024 france telegram users library cator of a company’s profitability, indicating how much gross profit the company earns for each dollar of revenue generated.
Gross profit is the difference between revenue and cost of sales (cost of goods sold plus other expenses).
gross profit margin
1.2. What is gross profit margin used for?
Gross profit margin is important to businesses, specifically:
Assessing business perform instead of spending a large amount of money ance: Gross Profit margin is an indicator to assess the health and competitiveness of a business. If this indicator is high, it shows that the business is capable of generating high profits from business and production activities. If this indicator is low, it shows that the business is having diffi cz lists culty generating profits and needs to find ways to reduce costs or increase selling prices to improve profits.
Choosing businesses with a large competitive advantage: Gross profit margin is important, helping businesses compare with competitors in the same industry and determine their position in the market. When businesses need to borrow capital, banks or credit institutions will also provide a profit margin appropriate to each scale and business sector.
1.3. Distinguish between gross profit margin and net profit margin
Below is a detailed table of gross profit and net profit margin:
Criteria Gross profit margin Net profit margin
Recipe = Gross profit/Net revenue x 100% = Profit after tax/Net revenue x100%
Concept Is the percentage of revenue a business retains after deducting direct costs such as labor and materials. Is the percentage of revenue that a business retains after deducting all costs related to production, business and management.
Interpretation For each dollar of revenue generated, how much gross profit does the business earn? How much profit after tax will each dong of net revenue bring to the business?
Meaning Clearly reflects the health and competitiveness of the business. Important indicator in evaluating the profitability of a business.
2. Factors affecting gross profit margin
Below are the factors that affect gross profit margin:
