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VMC: What Is Gross Profit Margin?

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Definition of Gross Profit Margin

  • The gross profit margin compares the difference between the revenue and cost of goods sold, against revenue.
  • It is represented in the form of a percentage.
  • It is used to evaluate the company’s financial health.
  • A higher markup price and lower cost of goods sold would increase the gross profit margin.

What is the Formula for Gross Profit Margin?

  • The gross profit margin is calculated by dividing the difference between revenue and cost of goods sold by revenue.

      Gross profit margin =  (Revenue – COGS) / Revenue

Gross Profit Margin in Practice

  • During COVID- 19, the revenue of Smile Juice dropped down to $87,900; however, the cost of goods sold remains the same at $56,000. What is Smile Juice’s gross profit margin?
  • ($87,900 – $ 56,000)/ $87,900 = 36.29%

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DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article.