Gross profit margin is calculated by subtracting operating cost from operating income, dividing it by operating income and multiplying it by 100 to get the percentage. If it is higher than in the past, or there is a trend of increasing gross profit margin, it shows that the added value of the company's own products is constantly improving.
Gross profit margin = (operating income-operating cost)/operating income x 100%
The added value may come from many places, such as brand value, technology patent, monopoly, regionality and so on.
When the enterprise has enough added value, it can bring more excess profits to shareholders without investing more cost, and it is easy to continue the competitive advantage of the company and maintain or enhance its position in the industry.
For example, a cup of coffee 150 yuan. After deducting the cost of 90 yuan, the gross profit rate = (150–90)/150 = 40%.
Definition of operating costs: Costs such as materials, packaging, procurement costs, etc., which will increase in proportion to the number of products sold, belong to operating costs.
Personnel cost and rent, these are all the money you have to spend whether you sell products or not, which belong to operating expenses, not operating costs.