What is the gross profit percentage?


Quick Answer

The gross profit percentage, or gross margin, tells the percentage of money a company keeps from its revenue after direct costs are accounted for, and it indicates a company's gross profit margin. To determine the gross profit percentage for a business selling goods, a person takes the company's sales and then subtracts factory ahead, direct materials and direct labor. The person then divides the resulting value by sales to get the gross profit percentage.

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Full Answer

Knowing a company's gross profit percentage is helpful, as it can help managers detect problems. If the gross profit percentage is declining, the company may be facing a price decline, an increase in spoilage, higher production costs or more bad debts. A decline can also signal a more competitive marketplace where the company will need to work to cut its costs.

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