What is the formula for gross profit margin?

The formula for gross profit margin is indeed calculated using the gross profit divided by sales revenue, multiplied by 100 to express it as a percentage. Gross profit, which is derived from sales revenue minus the cost of goods sold (COGS), reflects the revenue retained after covering the direct costs associated with the production of goods or services sold. By calculating the gross profit margin, a business can assess its efficiency in managing its production costs relative to its sales. This ratio provides a clear understanding of how much profit is generated per unit of sales before accounting for other operating expenses, taxes, and interest.

The gross profit margin serves as a crucial indicator of financial health, helping stakeholders evaluate the profitability and pricing strategies of a company within its industry. It also assists in making comparisons with competitors and identifying trends in profitability over time.

The other options do not pertain to gross profit margin. Net profit margin focuses on overall profitability after all expenses, including operating expenses and taxes, have been deducted from total revenue. The third option is a measure of solvency, expressing the proportion of capital to total liabilities, while the last option reflects the relationship between total assets and total equity, offering insights into financial leverage rather than profitability.