What will be the Gross Profit Ratio
The Gross Profit Ratio measures the profitability of a company in terms of its core trading activities. It shows the percentage of revenue that exceeds the cost of goods sold (COGS), before accounting for other expenses.
???? Formula:
Gross Profit Ratio=(Gross ProfitNet Sales)×100\text{Gross Profit Ratio} = \left( \frac{\text{Gross Profit}}{\text{Net Sales}} \right) \times 100Gross Profit Ratio=(Net SalesGross Profit?)×100
???? Where:
-
Gross Profit = Net Sales – Cost of Goods Sold (COGS)
-
Net Sales = Total Sales – Sales Returns
???? Example:
Let’s say:
-
Total Sales = ?10,00,000
-
Sales Returns = ?50,000
-
COGS = ?7,00,000
Then:
-
Net Sales = ?10,00,000 – ?50,000 = ?9,50,000
-
Gross Profit = ?9,50,000 – ?7,00,000 = ?2,50,000
Gross Profit Ratio=(2,50,0009,50,000)×100=26.32%\text{Gross Profit Ratio} = \left( \frac{2,50,000}{9,50,000} \right) \times 100 = 26.32\%Gross Profit Ratio=(9,50,0002,50,000?)×100=26.32%
???? Interpretation:
-
A higher ratio indicates better efficiency in producing and selling goods.
-
Helps businesses assess pricing, production cost control, and inventory efficiency.
