Gross Profit Margin and Net Profit Margin is one of great indication of the profitability and the health of the company. Normally mentioned two rations are calculated Monthly, Quarter and annual basis and show in the financial statement of the company. Calculation of Gross Profit Margin and Net Profit Margin falls under fundamental analysis and you can find the resource and details of company annual report and CSE website.

Gross Profit Margin

According to Investopedia Gross Profit Margin Means “A financial metric used to assess a firm’s financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. Gross profit margin serves as the source for paying additional expenses and future savings.” Gross Profit Margin is one of the important ratios of companies financials document and this shows the good health of the company. Following are the way how Gross Profit Margin was calculated.

You need to be bit careful that this ratio will not estimate the entire pricing strategy of the company but this will show good indication of the company’s health in peticlure year. If your Gross Profit Margin is 33% this indicates that products are marked up 50% and so on. Gross Profit Margin should not fluctuate much from one year to another and basically it should be stable.

Net Profit Margin

According to Investopedia Net Profit Margin Means “Net margin is the ratio of net profits to revenues for a company or business segment – typically expressed as a percentage – that shows how much of each dollar earned by the company is translated into profits. “Net Profit Margin may vary from company to company and industry to industry. Net Profit Margin is another good indication which shows in Annual report of the company. This is easily found on any balance sheet of company .Following are the way how Gross Profit Margin was calculated.

Net Profit = Revenue- COGS- Operating Expenses- Interest and Taxes.

The net profit margin shows the indication of the overall success of the business. Higher Net Profit Margin shows the company is moving forward in healthy manner.

Following are the financial statement which taken form Annual Report 2014/2015 of Texured Jersy PLC which listed in Colombo Stock Exchange.  In here you can get the idea of Net Profit Margin and Gross Profit Margin of this company in the year of 2015 and 2014.

Gross Profit Means deduct the cost of good sold in revenue and take it as a percentage of revenue but if we calculate Net Profit, Revenue may further have deducted in cost of good sold plus Operating expenses and Interest or taxes.