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How to Compare Industry Gross Profit Margins

How to Compare Industry Gross Profit Margins thumbnail
Compare Industry Gross Profit Margins

Accounting information provides individuals an opportunity to review a company's financial health and gauge their performance. A common formula used for comparisons is the gross profit margin, which allows for a comparison of different business industries.

  1. Formula

    • The gross profit margin formula is revenue minus cost of goods sold divided by revenue. For example, a company with revenue of $125,000 and cost of goods sold of $75,000 has a gross profit margin of 40 percent. This indicates 40 cents of each dollar is available to pay for expenses and provide profit.

    Features

    • To compare business industries, individuals can collect information from a finance website on each industry's dollar figures. This provides the essential information for calculating the gross profit margin. The percentage result of each industry's formula is then available for comparison.

    Warning

    • Comparing gross profit margins among industries is not always a good benchmark or financial indicator. Each industry typically has a historical gross profit margin that reflects the cost of goods for specific goods or services. Creating a multi-industry gross profit comparison can result in a comparison of apples and oranges.

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