Ratio Analysis
Gross Profit Margin
| = |
Revenue – Cost of
Goods Sold |
|
| Revenue |
Indicates what the company's
pricing policy is and what the true mark-up margins are.
| Things to remember |
- The results may be skewed if the company
has a very wide range of products.
- This ratio is very useful when compared
over several years.
- A 33% gross margin means products
are marked up 50%.
|
[Click on the button above to see the financial statement] |
| For Cory's Tequila Co. |
| ($12,154 – 4,240) |
=
0.65 |
| $12,154 |
Gross Profit Margin Analysis:
The gross margin is not an exact estimate of the company's pricing
strategy but it does give a good indication of financial health.
Without an adequate gross margin, a company will be unable to
pay its operating and other expenses and build for the future. Cory's Tequila Co. has a gross margin of 65% therefore their
mark-up is over 100% of the cost. In general, a company's gross
profit margin should be stable. It should not fluctuate much
from one period to another, unless the industry it is in has
been undergoing drastic changes which will affect the costs
of goods sold or pricing policies.
|
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