What is the gross margin ratio?

Gross margin ratio means the % of gross margin (Revenue-prime cost) to revenue.

The gross margin ratio shows the proportion of profits generated by the sale of products or services, before selling and administrative expenses.

 

 Sales – (Direct materials + Direct Labor + Overhead)                                Sales

The gross margin ratio is also known as the gross profit margin or the gross profit percentage. The gross margin ratio is computed by dividing the company's gross profit dollars by its net sales dollars.

This ratio measures how profitable a company sells its inventory or merchandise

it gross profit related the Total sales value

It's counted by dividing the gross profit by its net sales. *It represents the percent of total sales revenue that a company retains after incurring the direct costs associated with producing the goods and services it sales

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Gross Margin Ratio is calculated as a percentage as follows:

 ( Net Sales - Cost of goods sold) / Net Sales*100

It is usually used as indicator in calculating the selling price, or as a tool to measure the retail performance.

 

 

The proportion of profit margin is the ratio used to cover part of the fixed costs of the product