Register now or log in to join your professional community.
Gross profit margin is shown as a percentage while gross margin is an absolute amount.
Gross profit margin and net profit margin are two separate profitability ratios used to assess a company's financial stability and overall health.Profit margin is a percentage measurement of profit that expresses the amount a company earns per dollar of sales. Obviously, if a company makes more money per sale, it has a higher profit margin.The gross profit margin shows total revenue minus the cost of goods (the amount it cost the company to produce the goods or services that it sold, commonly referred to as cost of goods sold, or COGS). The calculation to arrive at gross profit margin is:Gross profit margin = (Revenue - Cost of Goods) ÷ Revenue = Gross Profit ÷ Revenue
he net profit margin is a more accurate measure of a company's profitability, as it reveals the percentage of revenue that actually reflects a company's profit per dollar of sales. Net profitability is an important distinction, since increases in revenue do not necessarily translate into actual increased profitability. Net profit is the gross profit (revenue minus cost of goods) minus operating expenses and all other expenses, such as taxes and interest paid on debt. The formula for net profit margin is as follows:Net profit margin = (revenue - cost of goods - operating expenses - other expenses - interest - taxes) ÷ revenue = Net Income ÷ Revenue
