Gross Profit Percentage

Knowledge Center



Summary, forum, best practices, expert tips and information sources.


What is the Gross Profit Percentage? Description

The Gross Profit Percentage is a ratio which can be derived from an income statement. GPP reveals the resulting profit from operations after all variable costs have been subtracted from revenues. It can be used for determining the efficiency of the performance of a company, because it shows the production efficiency in relation to the prices and unit volumes at which products or services are sold.
 

 Gross Profit PercentageComparison of the Gross Profit Percentage ratio

This provides the most meaningful information. For example:

  • Comparing the Gross Profit Percentage ratio with an industry average (ensure the method used of calculating the industry ratio is the same). This provides an indication of whether the company is performing better or worse than the industry as a whole. The comparison is useful for obtaining a preliminary knowledge of the company's business.

  • Comparing the Gross Profit Percentage between different divisions within an entity. This comparison indicates which divisions may require further investigation. The comparison is useful for obtaining a detailed knowledge of the company's business.

  • Comparing the Gross Profit Percentage over time. For example: comparing this year with last year. An increase in the ratio over the previous year may be an indication that cost of sales is understated (including, for example, an overstatement of closing inventory) or that revenue is overstated; a decrease may indicate that cost of sales is overstated or that gross revenue is understated. (Where monthly figures are available, an examination of the ratio for the last two months of the financial year could assist in highlighting any adjustments made to revenue and cost of sales at year end.) In many instances, however, a change in the ratio is caused by a change in production methods, product mix, or some other legitimate reason.

Gross Profit Percentage ratio calculation

A common Gross Profit Percentage ratio calculation goes as follows: Add together the costs of overhead, direct materials and direct labor; subtract the total from revenue; and then divide the result by revenue. A problem with this approach is that many of the production costs are not truly variable.

In order to avoid this, you can use another calculation formula, which only includes direct materials in the formula, shifting the other production costs into operational and administrative costs. This obviously yields a higher gross margin percentage.


Special Interest Group

Gross Profit Percentage Special Interest Group.



Special Interest Group (5 members)

Forum

Forum about the Gross Profit Percentage.


🔥 NEW Gross Profit Percentage of an Industry
What is the gross profit percentage for say the video games industry or were would I find it? (...)
5
 
1 reactions
 
Best Practices

The top-rated topics about the Gross Profit Percentage. Here you will find the most valuable ideas and practical suggestions.


Expert Tips

Advanced insights about the Gross Profit Percentage. Here you will find professional advices by experts.


Information Sources

Various sources of information regarding the Gross Profit Percentage. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.


Financial Statement Analysis | Ratio Analysis

Ratio Analysis, Finanical Statement Analysis
This presentation provides insights in Financial statement and ratio analysis, and includes the following sectios: 1. F (...)
 
 
 
 

Gross Profit Percentage Diagram

Efficiency of the Performance of a Ccompany
Download and edit this 12manage PowerPoint graphic for limited personal, educational and business use. Republishing in (...)
 
 
 
 


Compare with Gross Profit Percentage:  Operating Profit Percentage


Return to Management Hub: Finance & Investing


More Management Methods, Models and Theory

Special Interest Group Leader

Are you an expert in the Gross Profit Percentage? Sign up for free

Link to this knowledge center

Copy this code to your web site:

 


About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
© 2020 12manage - The Executive Fast Track. V15.6 - Last updated: 4-12-2020. All names ™ of their owners.