Gross profit margin
In one sentenceGross profit (sales minus cost of sales) divided by net sales, measuring how efficient pricing and purchasing are.
Simply put
It shows you how much is left of each riyal of sales after paying the cost of the goods themselves, and before rent, salaries and other expenses. This remainder is what covers the rest of your expenses and then makes the profit.
A drop from one year to the next usually means the purchase cost rose and you did not raise the price, or you gave more discounts, or the sales mix shifted to less profitable items.
Worked example
A pharmacy made net sales of 1,000,000 SAR in the year, and the cost of the medicines and products sold was 650,000 SAR.
Net sales1,000,000 SAR
Cost of goods sold650,000 SAR
Gross profit = 1,000,000 − 650,000350,000 SAR
Margin = 350,000 ÷ 1,000,00035%
Formula: (Net sales − cost of goods sold) ÷ net sales
Don't confuse it with
MarkupMarkup is calculated on cost and margin on the selling price: a 50% markup on cost means a margin of about 33% of the price.
in FullScreen ERP
Cost centers in General accounts give you the profitability of each branch, project or department separately. General accounts