Difference between the profit margin and gross profit rate

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Reference no: EM131203698

What is a difference between the profit margin and the gross profit rate?

The gross profit rate is computed by dividing net sales by gross profit and the profit margin is computed by dividing net sales by net income.

The gross profit rate will normally be higher than the profit margin ratio.

A profit margin of 7% means that 7 cents of each net sales dollar ends up in net income and a gross profit rate of 7% means that the cost of the goods were 7% of the selling price.

None, these are interchangeable terms.

Reference no: EM131203698

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