How to Calculate Gross Profit
Amuse your friends at cocktail parties by explaining how to calculate their stocks' gross profit margin.
- Difficulty:
- Moderate
Instructions
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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.
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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.
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3
Find the company's sales revenue for the period in question - for example, the most recent quarter or full year of operations.
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4
Find the cost of goods sold, which also will be reported in the company's financial statement.
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5
Subtract the cost of goods sold from the sales revenue figure.
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6
Divide the difference by net sales.
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7
Note the gross profit margin.
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8
Compare the figure with that of other companies in the same industry to see which company is profiting the most on sales.
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9
Compare the figure with previous quarterly data from one company to see if the company's profitability is trending upward or downward.
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1
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.
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Comments
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I have a good fight about this. Lets say salesman sold a car for $6500 the total cost of the car was 4000. By your calculation you take 4000 from 6500 and divide 2500/6500 and it comes out to 38.46% profit. Now my argument is: My calculation is different. If you had a car to sell that cost you $4000 and you wanted to make 62.5% profit then to take $4000 x 1.625 = and you have $6500 as a sale price with a 62.5% markup.
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shawnee50
Jan 13, 2009
Nice article very informative.thanks -
shawnee50
Jan 13, 2009
Nice article very informative.thanks
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BigDiamonds
Jan 10, 2009
The easy way to remember Gross vs. net. Is that a NET is what you CATCH.
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BigDiamonds
Jan 10, 2009
The easy way to remember Gross vs. net. Is that a NET is what you CATCH.
