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Gross margin

Gross profit margin

Description

This is the most general profitability ratio. When we calculate gross profit margin we compare revenue from sold goods or services to the cost needed to produce or buy it. This ratio shows how profitable a company is at the most common level. Data to calculate this ratio is collected from the income statement.

Norms and limitations

The higher the gross margin value the more competitive the company is.

Most often the value of this ratio is compared to the ratio value of the competitors of the company. Wide value variations are observed from industry to industry. Gross margin is mostly expressed in percentages.

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