Gross profit margin
- Why: To better understand your financial performance, especially how efficient a company is in producing its products or services
- What: To measure production efficiency by looking at all production costs relative to all sales revenue
- When: When investors and managers want to understand and compare the production efficiency of businesses
- The question this indicator helps you to answer: how much gross profit are we generating for each dollar of revenue generated?
Why does this KPI matter?
Another profitability ratio which is widely used is the gross profit margin. Instead of the net profit margin, where we are deducting all costs from the revenue, here we are only deducting the cost of goods sold (sometimes referred ...