Question

How is understanding gross profit margin particularly useful to managers and Investors? Give an example .

Please help me with this question.

Answer 1

In simple terms, gross profit margin can be thought of as Gross profit received from the sales of good per dollar bill received. This information is useful especially for the managers of a company in order for them to assess the effectiveness of the control of the cost of goods sold. It allows the managers to keep the prices in check and essentially increase their markup value. This indicates the value point for investors to invest in the company and therefore, it is a useful value for the managers and investors in terms of deciding the value that a company has or will have.