Gross Profit as a Percentage of Sales

In the Financial Manager, this ratio indicates the raw profit from operations. In other words, it shows the gross profit in relation to revenue from sales.

Gross profit can be affected by a combination of changes in:

• the selling price of a product
• the amount of manufacturing costs for a product
• the cost of goods purchased from vendors
• the cost of services from internal or external sources
• any variations in the product or services mix of the business

The calculation for this ratio is

where:

Gross Profit = Sales – Cost of Sales

Sales = the sum of all Income account types

Cost of Sales = the sum of all Cost of Sales account types

Example

If sales are $100,000 and cost of sales is $30,000, then gross profit is $70,000. Gross profit expressed as a percentage of sales is 70%.

The calculation for this example is