How to Find Gross Profit Ratio
The gross profit ratio measures the portion of the company's total sales that get retained as profits. In short, it measures how many pennies out of each dollar of sales the company keeps as profits. A higher gross profit ratio typically means the company produces its goods more efficiently and therefore could sell the goods at a lower price while still remaining profitable. However, it may vary from industry to industry.
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Instructions
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Calculate the net sales by subtracting any returns from all sales. For example, if you have $800,000 in sales and $30,000 in returns, subtract $30,000 from $800,000 to get $770,000.
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Calculate the gross profit for the company by subtracting any returns and the costs of goods sold from the total sales. For example, if your company sold $800,000 worth of goods, you paid $600,000 for the goods and you had $30,000 in returns, subtract $630,000 from $800,000 to get a gross profit of $170,000.
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Divide the gross profit by the net sales to find the gross profit margin expressed as a decimal. In this example, divide $170,000 by $770,000 to get 0.2208.
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Multiply the gross profit margin expressed as a decimal by 100 to find the gross profit margin expressed as a percentage. Completing this example, multiply 0.2208 by 100 to get 22.08 percent.
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