GROSS PROFIT MARGIN ON SALES Definition

Bookmark and Share

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

Learn new Accounting Terms

THEFT, as legally defined, encompasses a broad range of activities when one person uses, transfers, conceals, or retains possession of another persons property without the other persons consent. This definition is much broader than what most persons believe to be theft and can include writing bad checks, unauthorized use of a credit card, keeping found property without making a reasonable attempt to find its rightful owner, misusing trade secrets, unlawfully tapping into cable television services, wrongfully receiving public assistance, and removing serial numbers from movable property with the intent of concealing the identity of the true owner.

JUNK BOND is a bond with a speculative credit rating of BB or lower. Such bonds offer investors higher yields than bonds of financially sound companies. Two agencies, Standard & Poors and Moodys Investor Services, provide the rating systems for companies credit. See HIGH YIELD JUNK.

Suggest a Term

Enter Search Term

Enter a term, then click the entry you would like to view.