Question

Define gross profit percentage. How is this percentage used by analysts and investors?

Answer 1

Gross profit percentage = (net sales - cost of goods sold)/Net sales.

In other words = Gross profit % = Gross profit / Sales

Gross profit is one of the operational performance indicator. Higher the GP % better is the performance.

Cost of good sold typically consists major past of the total cost. If company can control its cost better gross profit % will increase.

Analyst and investor use GP% to compare the performance of the company with other. If GP % is better than industry average this means company is able to have better control on its cost then other companies.

higher the GP % more investor will be attracted to invest in the company.

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