Gross profit ratios express the relationship between gross profit and net sales. This ratio is also known as "Turnover ratio" OR "Margin ratio" OR "Gross margin ratio" OR "Rate of gross profit". This ratio is expressed in percentage of net sales. This ratio says about %age gross profit to net sales. This ratio analyses the basic profitability of business. It shows the degree to which the selling price per unit may decline without resulting in loss from operations. Yearly comparisons of gross profit ratio reveal the trend of trading results.
Formula:
Gross Profit Ratio= (Gross Profit/Sales)*100
Components of this ratio are
1) Net sales = Total sales less sales return
2) Gross profit = Sales - Cost of sales
3) Cost of sales = (opening stock + purchases + direct labour + other direct charge) - closing stock
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