How to Calculate Gross Profit Percentage in Accounting
The gross profit margin percentage in accounting or finance is the gross profits received by a business divided by the total gross revenues received by the business. This ratio helps a business and investors evaluate the percentage of revenues retained by the business and the percentage of revenues used to pay the costs of goods sold by the business.
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Instructions
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Determine the gross revenues received by the business. For example, assume a business received $40,000 in gross revenues.
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Determine the cost of the goods sold by the business. For example, assume the COGS by the business was $10,000.
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Subtract the COGS from the gross revenues. Continuing the same example, $40,000 - $10,000 = $30,000. This figure represents the gross profit for the business.
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Divide the goss profit by the gross revenues. Continuing the same example, $30,000 / $40,000 = 75 percent. This figure represents the gross profit margin for the business.
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References
- "Principles of Finance"; Scott Besley and Eugene Brigham; 2008
- The Government of Western Australia: Gross Profit Margin Ratio
