The gross profit margin helps determine how well a company generates revenue from the cost of producing goods and services. Gross profit margin equals the percentage of revenue that exceeds the 澳洲幸运5官方开奖结果体彩网:cost of goods sold (COGS). The higher the percentage, the more efficient the company generates profit for every dollar of the applica﷽ble 🍨direct costs.

Calculating Gross Profit Margin

Gross profit is a company's income after subtracting the costs of producing and selling its products. 澳洲幸运5官方开奖结果体彩网:Gross profit is shown as a whole dꦕollar amount and is calculated by: 

Gross Profit = Revenue - Cost of Goods Sold

Gross profit margin is the percentage of profit generated and is calculated by💫 dividing gross profit by revenue as shown below:

Costs Included in Gross Profit Margin

The two components of gross profit and gross profit margin are total revenue and COGS. Revenue sits at the top of a company's 澳洲幸运5官方开奖结果体彩网:income statement, which is why it's referred to as the top-line number. COGS is the direct costs a company pays to produce its𝔍 goods and includes:

• Direct materials
• Direct labor
• Equipment costs involved in the production
• Utilities for the production facility
• Shipping costs

What Is Excluded?

Gross profit only includes the costs directly tied to the production facility, while non-production costs like company overhead for the corporate office are not included. There are exceptions whereby a portion of 澳洲幸运5官方开奖结果体彩网:depreciation could be included in COGS and ultim♏ately impact 🤪;gross profit margin. 

Sometimes the source of the depreciation expense determines whether the expense is allocated as a COGS or an 澳洲幸运5官方开奖结果体彩网:operating expense. If꧅ depreciation expenses are included in COGS, they are captured in the gross profit ma🃏rgin.

Below is a portion of Walmart's (WMT) income statement as of January 31, 2025:

• Total revenue (in red) was $680.98 billion, while the COGS was $511.75 billion (in blue). 
• Gross profit margin was 36%, ($680.98 - $511.75 COGS) ÷ 680.98 = 0.25 X 100 = 25%
• Operating expenses and overhead, listed as 澳洲幸运5官方开奖结果体彩网:selling, general, and a𓃲dministrative (SG&A) expenses are listed below COGS and go into calculating 澳洲幸运5官方开奖结果体彩网:operating income, which came in at $29.35 billion for the period (highlighted in blue).

The Bottom Line

A company’s gross 🎉profit margin is the money it makes after subtracting the costs of business and production. The metric is expressed as a percentage of sales and may also be known as the gross margin ratio.