Gross Profit Margin

The gross profit margin indicates the percentage of each sales dollar remaining after the firm has paid for its goods. It is calculated as follows:

Gross profit margin = sales - cost of goods sold = gross profit
Sales Sales

For Jimco gross profit margin for 1993 is:

$13,000,000 = 2.55, or 25.5%

industry average = 16.67%

Jimco's gross profit margin appears to be greater than the industry norm of 16.67 percent.

Operating Profit Margin

The operating profit margin represents what are often called the pure profits earned on each sales dollar. It is calculated as follows:

Operating profit margin = Net operating income

For Jimco operating profit margin for 1993 is

$4,000,000 = .0784, or 7.84%

industry average = 5.47%

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Finance For Strategic Management
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