What financial ratio is calculated as gross profit divided by revenue?

What financial ratio is calculated as gross profit divided by revenue? Gross profit margin. It shows how much of each revenue dollar remains after subtracting the direct costs of producing or acquiring what was sold.

The formula is gross profit ÷ revenue, usually multiplied by 100 to express a percentage. Since gross profit equals revenue minus cost of goods sold (COGS), the equivalent formula is (revenue − COGS) ÷ revenue. A 40% margin means 40 cents of each revenue dollar remains before operating, financing, and tax expenses.

This measure is useful for studying pricing power, product economics, sourcing, and production efficiency. A manufacturer’s margin can change with material or labor costs, while a retailer’s margin reflects the spread between selling price and wholesale cost. Comparisons are most meaningful among similar businesses because industries have very different cost structures.

Gross profit margin is not the same as markup. Margin divides the profit by selling price or revenue; markup divides it by cost. It also differs from operating and net margins, which subtract additional operating expenses and, in the latter case, financing and taxes.