Calculating Gross Profit and Gross Profit Margin

What is Gross Profit?

• Gross profit is the difference between sales revenues and cost of goods sold

Gross profit equation:

Gross Profit Margin % = Gross Profit £ / Sales Revenue £

Interpreting the gross profit margin:

• Look for changes from over one year to another (and compare with other similar businesses)

• E.g. A fall in gross profit margin might suggest higher costs from suppliers or a decision to sell at lower prices

• E.g. An increase in gross profit margin might reflect better buying from suppliers or selling price rises