On a monthly revenue of $40,000 and COGS of $25,000, your gross margin is the $15,000 gross profit divided … Gross margin ratio is an important metric for your business. The gross profit margin (also known as gross profit rate, or gross profit ratio) is a profitability measure that shows the percentage of gross profit in comparison to sales.In other words, it calculates the ratio of profit left of sales after deducting cost of sales. Easily calculated, gross margin ratio provides you with a quick snapshot of profitability. Number of U.S. listed companies included in the calculation: 3984 (year 2019) . Gross profit margin, also known as gross margin, is a financial metric that indicates how efficient a business is at managing its operations. A good gross profit margin is enough to cover overhead and leave a reasonable net profit. The gross profit margin formula. Gross Profit Margin Ratio Analysis. You calculate the gross margin ratio as follows: Gross margin ÷ Sales revenue = Gross margin ratio. In addition to gross profit, gross margin can also be used as a percentage of net sales, which in business lingo is commonly known as gross profit percentage or gross margin ratio. Gross profit margin (gross margin) is the ratio of gross profit (gross sales less cost of sales) to sales revenue. For example, drawing from financial results posted on the Fidelity website, Starbucks (SBUX) has this history of gross margin and gross margin ratio: 2013: Sales = $14,892; Cost of Goods Sold = $11,126 Gross profit margin ratio = (15,000 -10,000) / 15,000 = 33%. Gross margin - breakdown by industry. More about gross margin. The gross margin ratio is the gross margin (also called gross profit or loss) divided by sales. Ratio: Gross margin Measure of center: The gross margin must cover the expenses of making sales, operating the business, and paying interest and income tax expenses, so that there is an adequate amount left over for profit. To calculate this ratio, divide gross profits by net sales.For example, a seller ships goods to a customer and bills the customer $10,000, while also charging the $3,000 cost of the shipped goods to expense. The gross profit margin ratio analysis is an indicator of a company’s financial health. In conclusion, for every dollar generated in sales, the company has 33 cents left over to cover basic operating costs and profit. Gross margin is a simple financial ratio that shows how much of your periodic revenue is left after you subtract costs of goods sold, or COGS. Gross profit margins vary by industry. Calculation: Gross profit margin = Gross profit / Revenue. What is the Gross Margin Ratio? 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