Financial Statement Analysis
 Ratio Analysis of Financial Statements (Formula, Types, Excel)
 Ratio Analysis Advantages
 Ratio Analysis
 Liquidity Ratios
 Cash Ratio
 Cash Ratio Formula
 Quick Ratio
 Quick Ratio Formula
 Current Ratio
 Current Ratio Formula
 Acid Test Ratio Formula
 Defensive Interval Ratio
 Working Capital Ratio
 Working Capital Formula
 Net Working Capital Formula
 Changes in Net Working Capital
 Cash Flow from Operations Ratio
 Cash Reserve Ratio
 Operating Cycle Formula
 Current Ratio vs Quick Ratio
 Bid Ask Spread
 Liquidity vs Solvency
 Liquidity
 Solvency
 Solvency Ratios
 Equity Ratio
 Capital Adequacy Ratio
 Liquidity Risk
 Altman Z Score
 Turnover Ratios
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 Accounts Receivable Turnover
 Accounts Receivables Turnover Ratio
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 Days Inventory Outstanding
 Days in Inventory
 Days Sales Outstanding
 Average Collection Period
 Days Payable Outstanding
 Cash Conversion Cycle
 Cash Conversion Cycle (CCC) Formula
 Fixed Asset Turnover Ratio Formula
 Debtor Days Formula
 Working Capital Turnover Ratio
 Profitability Ratios
 Profitability Ratios Formula
 Common Size Income Statement
 Vertical Analysis of Income Statement
 Profit Margin
 Gross Profit Margin Formula
 Gross Profit Percentage
 Operating Profit Margin Formula
 EBIT Margin Formula
 Operating Income Formula
 Net Profit Margin Formula
 EBIDTA Margin
 Degree of Operating Leverage Formula (DOL)
 NOPAT Formula
 OIBDA
 Earnings Per Share
 Basic EPS
 Diluted EPS
 Basic EPS vs Diluted EPS
 Return on Equity (ROE)
 Return on Capital Employed (ROCE)
 Return on Invested Capital (ROIC)
 Return on Sales
 ROIC Formula (Return on Invested Capital)
 Return on Investment Formula (ROI)
 ROIC vs ROCE
 ROE vs ROA
 CFROI
 Cash on Cash Return
 Return on Total Assets (ROA)
 Return on Average Capital Employed
 Capital employed Employed
 Return on Average Assets (ROAA)
 Return on Average Equity (ROAE)
 Return on Assets Formula
 Return on Equity Formula
 DuPont Formula
 Net Interest Margin Formula
 Earnings Per Share Formula
 Diluted EPS Formula
 Contribution Margin Formula
 Unit Contribution Margin
 Revenue Per Employee Ratio
 Operating Leverage
 EBIT vs EBITDA
 EBITDAR
 Capital Gains Yield
 Tax Equivalent Yield
 LTM Revenue
 Operating Expense Ratio Formula
 Overhead Ratio Formula
 Variable Costing Formula
 Capitalization Rate
 Cap Rate Formula
 Comparative Income Statement
 Capacity Utilization Rate Formula
 Total Expense Ratio Formula
 Efficiency Ratios
 Dividend Ratios
 Debt Ratios
 Debt to Equity Ratio
 Debt Coverage Ratio
 Debt Ratio
 Debt to Asset Ratio Formula
 Coverage Ratio
 Coverage Ratio Formula
 Debt to Income Ratio Formula (DTI)
 Capital Gearing Ratio
 Capitalization Ratio
 Interest Coverage Ratio
 Times Interest Earned Ratio
 Debt Service Coverage Ratio (DSCR)
 DSCR Formula (Debt service coverage ratio)
 Financial Leverage Ratio
 Financial Leverage Formula
 Degree of Financial Leverage Formula
 Net Debt Formula
 Leverage Ratios
 Leverage Ratios Formula
 Operating Leverage vs Financial Leverage
 Current Yield
 Debt Yield Ratio
 Solvency Ratio Formula
Gross Profit Margin Formula
At every level, the investors need to investigate. She needs to know how every aspect of the business is doing. When an investor looks at the income statement, it isn’t enough to check one profitability ratio like net profit margin. It’s equally important to look for other profitability ratios.
One of the most significant of all is a gross margin.
 Gross margin dictates how much profit a firm makes just by deducting the cost of goods sold from the revenue.
 Gross margin doesn’t take any other expenses into account except the cost of goods sold.
Here’s the gross profit margin formula –
Example of Gross Profit Margin Formula
Let’s take a practical example to illustrate gross profit margin formula.
Honey Chocolate Ltd. has the following information in its income statement –
4.8 (388 ratings)
 Net Sales – $400,000
 Cost of Goods Sold – $280,000
Find out the gross margin of the year.
First of all, we need to find out the gross profit of Honey Chocolate Ltd.
Here’s the calculation.
 Gross Profit = (Net Sales – Cost of Goods Sold) = ($400,000 – $280,000) = $120,000.
Using the gross profit margin formula, we get –
 Gross Margin = Gross Profit / Revenue * 100
 Or, Gross Margin = $120,000 / $400,000 * 100 = 30%.
 From the above calculation for Gross Profit margin Ratio, we can say that the gross profit margin of Honey Chocolate Ltd. is 30% for the year.
To interpret this percentage, we need to look at other similar companies in the same industry.
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Gross Margin of Colgate
Shipping and handling costs may be reported in Cost of Sales or Selling General and Admin Expenses. Colgate reported these as a part of Selling General and Admin Expenses. If such expenses are included in Cost of Sales, then the Gross margin of Colgate would have decreased by 770 bps from 58.6% to 50.9% and decreased by 770bps and 750 bps in 2014 and 2013 respectively.
source: – Colgate 10K 2015, pg 46
Explanation of Gross Profit Margin Formula
In gross profit margin formula, there are two components.
 The first component is gross profit. To calculate gross profit, we need to start with the gross sales. Gross sales are the first item in an income statement. We deduct the sales returns/sales discounts from gross sales and we get the net sales. The next item in the income statement is the costs of goods sold. When we deduct the costs of goods sold from the net sales, we get the gross profit of the company for the year.
 The second component of the gross profit margin ratio is revenues. Here revenues mean the total sales value of goods sold. When we multiply the sales price for each of the numbers of goods sold, we get the total revenue. Since “sales returns” or “sales discounts” can’t be included in the total sales value, we need to deduct these items from the total sales value. And by deducting these, we get “net sales”. And here we will consider “net sales” as the second component of the gross profit margin Ratio.
Use of Gross Profit Margin Formula
Profitability is an important factor to consider for investors. Investors look at mainly net profit margin along with gross margin. Gross profit margin calculator is useful to investors because by calculating the percentage, they can easily compare it with other similar companies.
Comparing the gross profit percentage of all similar companies in the same industry provides the investors with the knowledge of whether the gross profit of the target company is healthy or not. Higher the gross profit percentage, better the company’s overall health and profitability. However, every investor should look at all the financial ratios before coming to any conclusion.
Gross Profit Margin Calculator
You can use the following Gross Profit Margin Calculator.
Gross Profit  
Revenue  
Gross Profit Margin Formula =  
Gross Profit Margin Formula = 



Gross Profit Margin Formula in Excel (with excel template)
Let us now do the same example of gross profit margin calculator.
This is very simple. You need to provide the two inputs of Gross Profit and Revenue.
You can easily calculate Gross Margin in the template provided.
You can download this gross profit margin template here – Gross Profit Margin Excel Template
Gross Profit Margin Formula Video
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