Overview

Gross margin ratio, also called the gross profit margin ratio, is a profitability metric that measures how much profit a company earns after deducting its direct costs (i.e. cost of goods sold). The formula for the gross margin ratio is as follows:

Gross Margin Ratio = (Revenue - COGS) / Revenue

A higher gross margin ratio is preferred because it indicates that the company is generating more profit by selling its inventory. There are two common ways to increase the ratio: 

  1. Purchase inventory at a discount 
  2. Sell sold at a higher price
Reviews Add a review
No reviews yet

More From Corporate Finance Institute®

Browse our top rated business templates. See All
REIT Financial Model Template
7,762
14
This REIT financial model template acts as a guideline for modeling a real estate investment trust (REIT). This model will…
Energy Industry Comps Template Energy Industry Comps Template
7,249
533
This energy industry comps template provides a guideline and example of what a comparables universe would look like for a…
Financial Institution Dividend Discount Model
8,413
692
The financial institution dividend discount model uses future dividends to find the implied share price. This model is based on…
Loan Payment Calculator
7,639
424
The loan payment calculator allows users to determine the principal and interest payment each month until the full balance of…
DDM - Excel Dividend Discount Model Template
11,229
1458
The dividend discount model template allows investors to value a company base on future dividend payments. This is based on…
Non-directional trading strategy template Non-directional Trading Strategies Template
7,132
115
The non-directional trading strategies template allow users to determine the profit when buying options. This template focuses on non-directional strategies…
See All