BUSS 3 Ratio Analysis

Profitability

«  Gross Profit Margin

9  Shows the gross profit as a percentage of the sales

9  If in an industry that has infrequent sales (e.g. Ferrari) - higher GPM is needed on each product sold to compensate for low volume of sales

9  Excludes overheads

9  Useful in judging a business’ ability to manage the cost of sales 

«  Net Profit Margin

9  Shows the net (operating) profit as a percentage of sales

9  If high stock turnover, lower margins as profit arises from high volume of sales 

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