GROSS PROFIT MARGIN RATIO
CONDITION
| Year : | 2006 |
| Your ratio : | 0.58 |
| Industry Avg : | 0.74 |
| Gross Profit : | $576,587 |
| Total Sales : | $1,001,557 |
GRAPH
GROSS PROFIT MARGIN RATIO
The gross profit margin is a measurement of a company's production and distribution efficiency during the production process.The gross profit tells an investor the percentage of revenue / sales left after subtracting the cost of goods sold. A company that boasts a higher gross profit margin than its competitors and industry is more efficient. Investors tend to pay more for businesses that have higher efficiency ratings than their competitors, as these businesses should be able to make a decent profit as long as overhead costs are controlled (overhead refers to rent, utilities, etc.) While many ratios tend to focus on past of current perfomance, the gross profit margin ratio is a tool you can use to chart your company's future. When planning for sales growth, don't forget to include sales, general, and administrative expenses. These are variable expenses and usually increase with sales.
The gross profit margin ratio indicates how efficiently a business is using its material and labor in the production process It shows the percentage of net sales remaining after substracting cost of goods sold.A high margin indicates that a business can make a reasonable profit on sales, as long as it keeps overhead costs in control.
Compared to your peers, the perfomance of this ratio, indicates that gross profits are below the average If you are a high volume discounter, with turnover substantially higher than your peers, this may be acceptable. You may want to consider whether your pricing structure needs revamping. Another consideration is to review your Inventory Turnover ratio. If you have a higher turnover rate than your peers, discount selling may be acceptable.