Ratio Analysis: What is the Gross Profit Margin test?
The gross profit margin is the profit based on the sales value.
The formula is:
|Gross Profit Margin||=||Gross Profit||x||100|
Gross Profit is the turnover less the costs of sales. The cost of sales for excise traders is likely to be the opening stock plus the purchases made during the accounting period (usually a year) less the closing stock.
The gross profit margin in these cases reflects the profit made on the sales of goods purchased for resale before any other costs are taken into consideration.
A business will attempt to achieve the highest gross profit margin possible. Low profit margins will be an indicator to risk. However, lower profit margins are more credible when the turnover is high. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)
(This content has been withheld because of exemptions in the Freedom of Information Act 2000)