Purchase Solution

Calculation of Gross and Net Profit Margins

Not what you're looking for?

Ask Custom Question

Gross profit margin
76589/78807×100=97%
What is it mean if my gross profit margin is that high and what represent if the next year this percentage goes higher or lower?

Net profit margin
-15400/ 30000x 100%= -51%
What is it mean if my net profit margin is that low, goes to negative, what does it mean if this percentage goes higher or lower?

Purchase this Solution

Solution Summary

Calculation of Gross and Net Profit Margins.

Solution Preview

Please find attached, a formatted MS Excel spreadsheet, which contains answers for the questions posted below.

Ratio Analysis

What is it mean if my gross profit margin is that high, and what does it represent if the next year this percentage goes higher or lower?

Gross profit margin is a financial metric that is used to assess a firm's financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for paying additional expenses and future savings.

Gross profit margin = (Revenue - Cost of Goods Sold) / Revenue
Gross profit margin = 76589 / 78807 × 100 = 97%

For example, from the example given, it can readily be determined from viewing the gross profit margin equation that the company had $78,807 in revenue, and that the Cost of Goods Sold for the company was $2,364 ($78,807 - $76,443). Since the Gross Profit Margin for the company is 97 percent, this means that for every dollar that the company earns in revenue, it has $0.97 (of the earned $1.00) at the end of the day.

This metric can be used to compare a company with its competitors. More efficient companies (as the one cited in this example) will usually see higher profit margins. If this percentage goes higher next year, it would mean that the ...

Purchase this Solution


Free BrainMass Quizzes
Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.