In short
The gross margin ratio is gross profit (net sales minus cost of goods sold) divided by net sales. It shows how much of each sales dollar is left to cover operating expenses and profit.
Key takeaways
- Changes reflect pricing, product mix and production or purchase costs.
- Inventory method choices, such as last-in, first-out versus first-in, first-out, affect it.
- It is most useful compared with prior periods and competitors.
Where it's tested
BAR: Financial Statement Analysis — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A company with a current ratio of 0.8 uses cash to pay off an accounts payable balance. What is the effect on the current ratio?