What does gross profit margin mean?

Gross profit margin is a key financial metric that measures a company's profitability. It is calculated by dividing the gross profit (total revenue minus the cost of goods sold) by the total revenue. This ratio represents the percentage of each dollar of revenue that the company retains as gross profit after paying for the cost of goods sold. A high gross profit margin indicates that a company is effectively managing its production and distribution costs, and is able to generate more profit from each sale. On the other hand, a low gross profit margin may indicate that the company is struggling to control its costs and may be less efficient in its operations. Gross profit margin is an important indicator for investors and analysts, as it provides insight into a company's ability to generate profit from its core business activities. It also helps in comparing the financial performance of different companies within the same industry, as well as tracking a company's profitability over time. Ultimately, a healthy gross profit margin is essential for a company's long-term success and sustainability.