Financial Analysis: Gross Margin

Gross Profit Margin = Gross Profit (Revenue - COGS)/ Sales

Profit margin is the ratio used in financial analysis to measure the gross profit per sales. Gross profit as in COGS deducted from the Sales revenue.

Higher the Gross Margin the more efficient the firm/company in turning its raw material into income. If its a retail firm, the higher number tell how fast they turn the inventory into income.

Check out for more financial ratios and their interpretation in financial statements.