A company has good gross margin when it is competitive with its industry peers and remains stable in the long-term, according to Investopedia. Profit margins vary greatly from industry-to-industry. For example, the airline industry averages 5 percent, while the software industry averages 90 percent.Continue Reading
Gross profit margin is the proportion of money left over after subtracting the cost of goods sold from revenues. Gross margin is a company's best resource for meeting additional expenses and retaining earnings. It is calculated by subtracting the cost of goods and services from revenue and dividing that figure by revenue. For example, if Company A has $100,000 in revenue and $50,000 in COGS, its gross profit margin is 50 percent. Gross profit margin is used by investors and stock analysts to compare companies in the same industry, notes Investopedia.
Companies with high profit margins are considered superior investments because they build equity faster, have more capital to expand operations and are better prepared to weather a downturn than a low profit margin company, which could be wiped out in a recession, explains Investopedia. Gross profit margin is also used to test the growth and validity of a particular product or service. This factor is important because an item can generate a large volume of sales but not be a viable or competitive investment option because of low profit margins.Learn more about Accounting
To prepare a profit and loss sheet, start with the total income or revenue of the business or company and subtract the cost of goods or products. This gross profit value must then be subtracted by all the expenses of the company, resulting in a net profit or loss.Full Answer >
Turnover refers to the number of times an asset must be replaced during a company's financial period, according to Investopedia. Turnover usually refers to a company's inventory or accounts receivable because turnover ratios denote how quickly a firm brings in revenue.Full Answer >
Work out a profit margin by dividing a measure of the company's profitability by the revenue, or sales, figure. There are a few different calculations for profit margins, depending on what data is requiredFull Answer >
To calculate the gross profit percentage, also known as the gross profit margin, the gross profit should be divided by the total revenue and then multiplied by 100. This is the percentage of money that the company makes from selling goods or services after subtracting the costs of producing them. The higher the percentage, the healthier the company's profits are before the subtraction of overhead costs.Full Answer >