The company's gross profit ratio is 33.33%.
What is a gross profit ratio?
- A sort of profitability ratio is the gross profit margin ratio, often known as the gross margin. It is useful to calculate the profit generated by a company's sales of goods and services after direct costs are subtracted.
- Simply put, it is a straightforward indicator to assess the profitability of the business. It is also beneficial to assess how well the business uses its labor force and raw materials during the production process.
- The cost of products sold is subtracted from the total sales to determine the gross profit in a company's income statement.
- Only the direct costs of the business are taken into account when calculating the cost of products sold. The direct expenses are erratic because they fluctuate according to the volume of production.
The gross profit ratio is calculated as
gross profit ($500,000 − $50,000 − $300,000) divided by net sales ($500,000 − $50,000)*100=33.33%.
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