How to Calculate Gross Profit

Amuse your friends at cocktail parties by explaining how to calculate their stocks' gross profit margin.

Difficulty: Moderate

Instructions

Things You'll Need:

• Financial Calculator
• Paper And Pencils

1. Understand that a gross profit margin is a profitability ratio. It allows analysts and investors to compare the profitability of different companies or the same company over different time periods.

2. Look up a company's most recent financial data. Publicly traded companies report their sales figures to the Securities and Exchange Commission (SEC). You can view this data online at FreeEdgar.com.

3. Find the company's sales revenue for the period in question - for example, the most recent quarter or full year of operations.

4. Find the cost of goods sold, which also will be reported in the company's financial statement.

5. Subtract the cost of goods sold from the sales revenue figure.

6. Divide the difference by net sales.

7. Note the gross profit margin.

8. Compare the figure with that of other companies in the same industry to see which company is profiting the most on sales.

9. Compare the figure with previous quarterly data from one company to see if the company's profitability is trending upward or downward.

Tips & Warnings

• Some companies report their own gross profit margins in their filings with the SEC, so you won't have to do the math.

[shawnee50]

on 1/13/2009 Nice article very informative.thanks

[iamageniuster]

on 1/12/2009 Neat article. I enjoyed reading it.

[BigDiamonds]

on 1/10/2009 The easy way to remember Gross vs. net. Is that a NET is what you CATCH.

[blairone]

on 11/21/2007 Is gross profit different to GP margin? It is right? If so, is gross profit just sales revenue - COGS?

on 8/8/2006 You have to subtract any discounts and bonuses if available. Also, you have to subtract any kind of taxes in order to find out the end profit.