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Vendline Tools :: Gross Profit Margin
Gross Profit Margin

The gross profit margin is a measurement of a vending companies efficiency during the business process.

The gross profit describes the percentage of revenue / sales left after subtracting the cost of goods sold. A vending company that boasts a higher gross profit margin than its competitors and industry is more efficient. Buyers tend to pay more for businesses that have higher efficiency ratings than their competitors, as these businesses should be able to make a decent profit as long as overhead costs are controlled.

To calculate gross profit margin, use this formula: Gross Profit / Total Revenue.

As an example Tom's Vending Company had a total revenue of $345,876.00 during 2004. The cost of goods, or cost of sales, were 154,326.78 for the same period. The gross profit was $191,549.22 for that period. The gross margin for the period was then .5538 or 55.38%.

The gross margin tends to remain stable over time. Significant fluctuations can be a potential sign of fraud or accounting irregularities. If you are analyzing the income statement of your business and gross margin has historically averaged around 3-4%, and suddenly it shoots upwards of 25%, you should be seriously concerned.

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