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Gross Profit Percentage (Examples) | How to Calculate Gross Profit Percentage? - YouTube
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welcome everyone let's begin with the
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today's topic that is the gross profit
percentage formula so the gross profit
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percentage formula percentage is the
formula which is used by the free call as
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the management the investors basically
and the financial analysts to know the
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financial health basically the
profitability of the company after the
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accounting for the cost of sales is
calculated by dividing the gross profit
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of the company by its net sales so first
of all what is the gross profit
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percentage let's study this see the
gross profit percentage is a measure of the
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profitability that calculates how much
of every dollar of the revenue is left
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over after paying off the cost of goods
so in other word it measures the
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efficiency of the company in utilizing
the inputs of the costs of production
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such as like raw material
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and labor in order to produce and sell
its products profitability it can be
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seen as a percentage of the sale that
exceeds direct cost associated with the
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manufacturing in products so these
direct costs or so called as cogs
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primarily consist of raw materials and
direct labor the calculation of the
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gross profit percentage formula is done
by dividing the the gross profit okay
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you can say the gross profit percentage
formula is done by dividing the gross profit
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it by the total sales and express it in
percentage terms
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well let's understand the margin formula
here the gross profit percentage is
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represented by the gross profit
percentage formula is equal to gross
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profit divided by the total sales in
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100% so it can be further be
expanded as the gross profit percentage
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formula is the total sales
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less the cost of goods sold divided by
the total sales into 100% it was so the
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money that is remaining after covering
the cogs is used for these services
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and other operating expenses like
selling Commission expenses and so on
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and so for the journal admit expense
research and development marketing
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expands interest experience that appears
further below in the income statement so
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asset these are the higher it is it is
better for the company to pay off its
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operating expense for the business let's
understand the steps to determine the Gb
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percentage
well the calculation of the gb+ formula
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can be simply be done by using the
following steps step number one is that
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you first you know the total sales of
the company okay which is easily
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available as a line item in the income
statement second now next gather the COGS
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directly from the income statement or
compute the COGS by adding a direct
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cost of manufacturing such as raw
material labor wages and so on and so
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forth third next is the gross profit is
calculated by deducting the COGS is
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from the total sales that is the gross
profit is equal to the total sales -
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COGS step number 4 finally it
is calculated by dividing the gross
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profit by the total sales that is shown
and it is expressed in the percentage that
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names just
so the gross profit for percentage formula
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is equal to your total sales less the co
GS /
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the total sales into 100% let us
understand this with the help of an
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example let's understand the concept
with the help of a simple example to
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understand it better example number one
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let us consider the example of a company
all X Y Z limited before doing the
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calculation of gross profit the X Y Z
limited is a business of into
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manufacturing customer is roller skates
for both the professional and the
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amateur skaters so in the end of the
financial year XYZ Limited has or let's
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say around $150,000 in total
okay net sales doing they along with the
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following expenses so as for the
equation based on the below information
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over which I'm going to provide we will
do the calculation of the gross profit
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percentages
first of all labor raw material factory
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rent interest depreciation and then taxes
gonna note down numbers for each of them
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50000, 25000, 5000, 10000 ,15000 & 5000
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so by using the about it I will first
calculate the cost of goods sold the
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COGS is equal to your labor wages plus
your raw material expense plus your
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factory rent that is equal to
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50 + 25 + 5000
that comes down to 80,000 so that's your
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cogs only those costs are taken to
computation of the cogs which had me
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directly be allocated to the production
and now we will calculate the gross
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profit by using the given data somewhere
close like this the gross profit is
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equal to your total sales that was $150,000 in the initial less the COGS
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that is 80,000 which we calculated win
it back so of a gross profit is 75,000 and
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therefore the calculation of the gross
profit percentage of the XYZ limited
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will be
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it's called the GP percentage
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70,000 /150,000 into 100%
Comes down too closely around
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46.67%
so XYZ limited gross profit percentage
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for the year stood at 47%
it's do example number 2 now let us
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take the example of the Appling for the
gross profit percentage calculation for
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the fiscal year 2016-17 2018 press for
the annual report the information that
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can be available based on
the details it's going to be the net
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sales
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2016 2017 and 2018
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well the net sales over here we are
gonna put down 215639 215639 2
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29234 265595 then the cost of
sales that is 131376
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141048 and one
163756 so by using the
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about eight hour we will be will be
first we calculate the gross profit of
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the apple inc for the year 2016 the gross
profit is the gross of the gross profit
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2016 is equal to net sales minus the
cost of the goods sold so it's as simple
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as that
just this is your gross profit GP okay
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this is your gross profit then the gross
of it for 2017
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head then 2018 right so we have found
all the numbers and you know how we
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calculate gross profit divided by the
sales the GP percentage
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is equal to your gross profit / sales
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into 100% control R convert this into
percentage there we go
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we have all over answers now I want to
make you understand
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first what exactly is the relevance and
uses of this formula see the
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understanding of it is this is very
important for an investor because it
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shows how much profitability is the core
business activities of the company are
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without taking into consideration any
sort of indirect costs okay so an
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analyst can use these ratios specially
as an assessment metric to compare the
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operating performance of the company
with other players within the same
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industrial sector and also the company
is used these ratio as an indication
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okay of the financial benefit
and the viability of a particular
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product or services see any money that
is left over after covering the COGS
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is used to pay of the other operating
expenses in simple words higher it is
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more the company saves on each of the
dollar of the sales in service and other
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operating costs the business obligation
so if a company is capable of sustaining
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materially materially higher gross
profit margin compared to the most of
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the other peers always it means that it
has more efficient processes and more
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efficient operations that makes it safe
long term investment on the other hand
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if you see a company is not able to earn
let's say n equal top gross profit
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percentage it may be difficult for such a
company to pay of its operating expenses
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and as such the gross profit percentage
alpha company should be stable unless
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and until there are some major changes
done by the company's business model
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that's it for this particular topic
thank you everyone for once again for
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