Gross Profit Margin explained (Why its important?)

Course Alert:
If you would like to learn in detail, how to calculate income statement variances and the impact they have on sales $, profit $ and profit margin % and ebitda %, and how to explain performance vs budget and prior periods, click on the link for a detailed video course (at a special price). You will also learn how to analyse and present the results of the variances to management and will be able to download solved variance calculation Excel templates. ebitda.thinkific.com/courses/...
Looking for more personalized help?
Get in touch with me on one of these platforms:
Instagram: / learnaccountingfinance
Facebook: profile.php?...
Tiktok: / learnaccountingfinance
Website: www.learnaccountingfinance.com
Subscribe: ruclips.net/user/LearnAccount...
What is gross profit and gross profit margin?
In this video, you will learn exactly how gross profit is calculated, and how gross profit margin is different from gross profit and net profit.
Some Recommendations:
Are you a First Time or New Manager? Check this out: amzn.to/35qWzLc
Learn pivot table data crunching business skills here: amzn.to/3lgYB5E
Learn all about Excel in one place: amzn.to/3laCXQx
Learn what financial numbers really mean here: amzn.to/2HPYDUI
Accounting explained in 100 pages or Less: amzn.to/3rCProc
00:00 What is Gross Profit margin and how is it calculated
02:06 Difference between Gross Profit and Gross profit margin
02:24 Whats included in Gross profit calculation (Net sales and cost of goods sold)
04:47 How do you interpret gross profit margin
07:38 How to calculate net profit margin
08:05 What is a good Gross profit margin %
10:02 How to add margin to cost
11:07 Conclusion
What is Gross Profit?
Gross Profit is the difference between net sales and cost of goods sold for a business. It is the sales value less cost of goods sold or services provided. Gross Profit may be defined slightly differently for a manufacturing business as compared with a service or trading business. However, in principle, its calculated in the same way. It represents the profit made after deducting the costs related to the product or service from the sales value only. Note that the calculation of gross profit does not include business expenses that are not related to the purchasing of a product and delivering it to the customer. Costs related to Sales and General and admin departments for example are not included in the calculation of Gross profit.
/ learnaccountingfinance
www.learnaccountingfinance.com
Whats included in Gross Profit calculation?
Any deductions from sales such as discounts, rebates etc are deducted from the selling price to arrive at Net Sales value when calculating gross profit. Similarly, when calculating Cost of Goods sold, the cost of manufacturing or purchasing the product (or in the case of a service business, the cost of service delivery), are also included in the calculation of Gross profit. Transportation costs (both inbound to the business and outbound to the customer) are also included in the Cost of goods sold calculation. Similarly, any non refundable taxes and duties paid by the business are included in the cost of goods sold. If the customer of the business pays transportation, however, than the cost of such transportation is not included in the calculation of Gross profit.
While gross profit is calculated in terms of amount, gross profit margin is calculated in terms of percentage, and the formula for calculating gross profit margin is Gross Profit divided by Net Sales, multiplied by 100. Gross Profit margin is also often referred to as Gross margin, Gross Profit percentage, Gross profit ratio and Gross profit to Net Sales ratio.
Difference between Gross Profit margin and Net profit margin
While gross profit and gross profit margin deal only with costs of manufacturing, purchasing or delivering the product, net profit and net profit margin also consider all other business operating expenses such as costs of Sales department, IT, Finance, HR and other administrative expenses. Net profit margin is calculated in the same way as gross profit margin. The only difference is that the numerator is changed by Net profit instead of Gross Profit. Denominator remains same.
What is a good Gross profit margin
Generally, a high gross profit margin is desirable, so the higher the margin percentage the better. However, an important factor to keep in mind is that ultimately, what is more valuable is the amount of profit made by the business. So, if gross profit margin is very high as a result of higher prices compared to competition, and it results in lower sales, then it may be so that by reducing the price and increasing the quantity of sales, the business may end up with higher gross profit or net profit.

[@LearnAccountingFinance]

Looking for personalized help on this or similar topics? Lets discuss!
calendly.com/learnaf
You can also connect on Facebook or Instagram. Look for @learnaccountingfinance

[@saurabhbhoyar9932]

Simple and to the point ... very useful :) was able to clear many boubt at once.

[@budsabathongla103]

Your explanation is very easy to understand. Millions Thank. Could you please explain more How you allocate selling expenses to each product and check the net margin of its?

[@youssramouhssine2521]

I really love how simple you explain things thank you for that .. .. & i hope you do a video about vertical & horizontal analysis of financial statements

[@LearnAccountingFinance]

Thank you Youssra, and great suggestion. Here is a video on income statement analysis (a little advanced) that you may find useful. ruclips.net/video/DofWQDUeEpg/видео.html

[@shaileshjha6623]

Nicely explained

[@Moneyisboss]

Day made !!! Thank you so much for these videos 🌸🌸🌸

[@LearnAccountingFinance]

You are welcome. I am glad you liked it.

[@marazurolo6579]

Hi, would you say COGS included labour cost if we're talking about restaurants ?
Thank you for kindly uploading this, very helpful !

[@nakitastewart2649]

Thanks for this video

[@LearnAccountingFinance]

You are welcome Nakita

[@chamivolg8901]

Excellent.thanks

[@LearnAccountingFinance]

Thank you.