# Calculation of Gross and Net Profit Margins

Gross profit margin

76589/78807Ã—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?

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#### 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 Ã— 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 ...

#### Solution Summary

Calculation of Gross and Net Profit Margins.