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Gross Profit Margin

Gross profit margin, also known as gross margin, is a financial metric that represents the percentage of revenue that remains after deducting the cost of goods sold (COGS) or cost of sales from a company's total revenue.

Gross profit margin is calculated by dividing the gross profit by the total revenue, and multiplying by 100 to express it as a percentage.

The formula for calculating gross profit margin is:

Gross Profit Margin = (Gross Profit / Total Revenue) x 100


Company A generates $1 million in revenue from selling products and has a gross profit of $500,000, its gross profit margin would be:

Gross Profit Margin = (Gross Profit / Total Revenue) x 100 

Gross Profit Margin = ($500,000 / $1,000,000) x 100 

Gross Profit Margin = 50%

This means that 50% of Company A's revenue is available to cover other expenses and generate net income.

A higher gross profit margin indicates that a company is more efficient at controlling its cost of goods sold and generating profits from its products or services, while a lower gross profit margin may suggest that a company is facing pricing pressure or struggling to manage its production costs.

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