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GROSS PROFIT MARGIN ON SALES (GPM) is one of the key performance indicators. The gross profit margin gives an indication on whether the average markup on goods and services is sufficient to cover expenses and make a profit. GPM shows the relationship between sales and the direct cost of products/services sold. It measures the ability of both to control costs and to pass along price increases through sales to customers. The gross profit margin should be stable over time. A persistent gradual decrease is likely to indicate that productivity needs to be increased to return profitability back to previous levels. Generally:
>40% = Indicates a sustainable competitive advantage
< 40% = Indicates competition may be eroding margins
< 20% = There is likely no sustainable competitive advantage
Formula: Gross Profit / Net Revenue
SALES / RECEIVABLES (Receivables Turnover) is a ratio that measures the number of times trade Receivables turn over during the year. Generally, the higher the turnover of receivables, the shorter the time between sale and cash collection. It indicates how fast the company is getting paid for goods and services. Receivables turnover is best compared to the industry in order to determine if the company should improve their collection rate. The faster the receivables turnover, the better cash flow will look. Slow or below par turnover can be an indication of systemic problems within the company. It is best to compare receivables turnover with that of industry averages. Formula: Net Revenues / Accounts Receivable (net)
MONTHLY is: a. Once a month; every month; from month to month; or, b. Done, produced, or occurring once a month.
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