Gross Profit Percentage (Definition & Formula) | FortuneBuilders

Abstract

What Is Gross Profit Percentage? A company's gross profit percentage measures the profitability of its business based on numerous factors. A high gross profit percentage signals a healthy business, but there are a few other important considerations to remember when looking at a company's gross profit ratio. What Gross Profit Percentage Doesn't Tell You While understanding the gross profit ratio is a useful resource for investors, it's also important to be aware of some of the shortcomings associated with gross profit percentage. A company could have a great gross profit percentage, but an overall weak sales volume that won't be sufficient to cover expenses that aren't included in the gross profit ratio formula. How to Find Gross Profit Percentage Before we give you the gross profit percentage formula, there are a few terms you need to know before understanding how to calculate a company's gross profit ratio properly. Gross Profit: For those wondering how to find a gross profit percentage, gross profit is what is the leftovers of your profit after you've subtracted your cost of goods sold. Gross Profit Percentage Formula Although the gross profit ratio formula itself is simple and easy to calculate, a few steps go into figuring out the variables that go into the formula.