What is the formula for calculating Gross Profit Margin?

The formula for calculating Gross Profit Margin is Gross Profit divided by Sales Revenue. This metric is essential in analyzing a company's efficiency in turning sales into profits, reflecting how much money is left after accounting for the cost of goods sold (COGS).

Gross Profit is calculated by taking the revenue generated from sales and subtracting the costs directly associated with producing those goods. By dividing Gross Profit by Sales Revenue, the Gross Profit Margin provides a percentage that indicates the portion of sales that exceeds the COGS, offering insight into pricing strategies, production efficiency, and overall financial health. A higher Gross Profit Margin signifies greater efficiency and profitability for the company.

Other options focus on different aspects of financial performance. For instance, Net Income/Total Assets measures return on assets, while Operating Income/Sales Revenue reflects operating efficiency, and Net Revenue/Total Revenue does not specifically address profit margins related to gross income. Therefore, the focus of Gross Profit Margin on production efficiency solidifies why this formula is the correct choice.