**Gross profit margin** **ratio** **(GPMR)** is one of profitability ratios. It measures how much of each sales dollar remains after costs of goods are deducted. In other words it measures the relative costs of goods sold.

**Gross profit margin** **ratio** **(GPMR)** = Gross Profit/Sales

**EXAMPLE:**

For example, if ABC has a gross profit of $1,000,000 and sales of $3,000,000, then the Gross profit margin ratio (GPMR) is calculated as follows:

= 1,000,000/3,000,000 = 0.3333 or 33%

# Test yourself

Dillon Corporation has a gross profit of $1,200,000 and sales of $3,500,000.

Required: Find the Gross profit margin ratio (GPMR)

Solution:

The calculation of Gross profit margin ratio (GPMR) of Dillon Corporation will be as follows: = 1,200,000/3,500,000 = 0.34 or 34%

Conclusion:

The higher the Gross profit margin ratio (GPMR) the lower the relative cost of goods sold. Therefore, the higher the Gross profit margin ratio (GPMR), the better.