### Gross Profit Ratio Formula & Example

Definition: Gross Profit Ratio is the ratio of gross profit to net turnover expressed as a percentage. It is also known as "Gross profit as a percentage of net turnover" or "Gross profit percentage/margin".

Formula:

GP Ratio = (Gross profit / Net sales) * 100%

Example 1:

Kent Ltd has a total sales of $700,000, Sales returns $30,000, and Cost of goods sold $500,000. Calculate GP ratio.

Solution:

Gross profit = (700000 - 30000) - 500000 = $170,000

GP Ratio = (170,000 / 670,000) * 100% = 25.37% (correct to 2 decimal places)

Example 2:

Calculate the GP percentage, given the following figures:

Total purchases $23,500

Stock at start of year $88,000

Stock at end of year $28,000

Purchases returns $3,500

Sales returns $40,000

Total sales $250,000

Solution:

Net purchases = Total Purchases - Purchases returns = 23500 - 3500 = $20,000

Cost of Sales = Stock at start + Net purchases - Stock at end = 88000 + 20000 - 28000 = $80,000

Net sales = Total sales - Sales returns = 250000 - 40000 = $210,000

Gross Profit = Net sales - Cost of sales = 210000 - 80000 = $130,000

GP percentage = (GP / Net sales) * 100% = (130000/210000) *100% = 61.90%

* Next: Net Profit Ratio Formula & Example

Formula:

GP Ratio = (Gross profit / Net sales) * 100%

Example 1:

Kent Ltd has a total sales of $700,000, Sales returns $30,000, and Cost of goods sold $500,000. Calculate GP ratio.

Solution:

Gross profit = (700000 - 30000) - 500000 = $170,000

GP Ratio = (170,000 / 670,000) * 100% = 25.37% (correct to 2 decimal places)

Example 2:

Calculate the GP percentage, given the following figures:

Total purchases $23,500

Stock at start of year $88,000

Stock at end of year $28,000

Purchases returns $3,500

Sales returns $40,000

Total sales $250,000

Solution:

Net purchases = Total Purchases - Purchases returns = 23500 - 3500 = $20,000

Cost of Sales = Stock at start + Net purchases - Stock at end = 88000 + 20000 - 28000 = $80,000

Net sales = Total sales - Sales returns = 250000 - 40000 = $210,000

Gross Profit = Net sales - Cost of sales = 210000 - 80000 = $130,000

GP percentage = (GP / Net sales) * 100% = (130000/210000) *100% = 61.90%

* Next: Net Profit Ratio Formula & Example

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