What is the ratio of gross margin?
The ratio of the gross margin, also known as GMR, is a financial formula that counts, how much sales remain after deducting the costs of goods (COGS) for all items sold. The simple formula of the rough margin ratio has two parts: total sale - COGS = gross profit; Gross profit / total sale = GMR. This ratio is important because it gives companies to know how much income they generate through the sale of products to cover their sales and management expenses. Accountants also use this ratio during their process of financial analysis to determine how well the company has done over time and how consistent it was in making profits. The ratio is specific to each industry, as companies must compare their conditions for companies with similar trade structures. While each company can use a rough margin ratio, it is used primarily by manufacturer and retailers who use this ratio to determine whether their goods are appropriately retrieved by all commercial costs.
Because most companies want to work for profit, they must be goods and services for the price added a small margin of profit. The ratio of the gross margin usually represents an additional amount of profit because the formula includes only the selling price and cogs of products and services. Analysis of the ratio of gross margin is a small part of the total analysis of the management of the financial ratio used to review the company's financial information.
Financial analysis is a popular tool for management used to distribute financial statements presented by internal and external users. The popularity of this management tool is derived from simple calculations traditionally used by accountants to determine how well the company works from a financial point of view. The ratio is also used in a tandem with benchmarking, which compares the calculations of one company financial ratio to analyze the competitor's ratio. Company with the best calculations of the ratio usually introduceE of the strongest competitor on the economic market.
However, the analysis of the ratio of gross margin should not be used as the only financial ratio in reviewing the company's financial information. Businesses are the amount of their total parts; Although they may have a strong ratio of gross margin, their expenses may be out of control or their total sale may have been declining over the last few years. Companies must be divided by all financial information in their financial statements to determine how strong they are on the economic market.