Gross profit margin is the percentage of an item's retail price that the company retains as profits after paying the cost of the good. However, the gross profit margin can be broadened to calculate the overall gross profit margin for a company over a period of a year or longer. As an investor, you can find the company's total revenues and the costs of goods sold in the company's annual report. The higher the gross profit margin, the more profitable each sale is for the company.
1. Subtract the cost of goods sold from the total revenues to find the company's total profit during the period for which you want to calculate the gross profit margin. For example, if a company sold $890,000 of goods that cost the company $555,000 to purchase, subtract $555,000 from $890,000 to find that the company's profit equals $335,000.
2. Divide the profits by the total revenues to get the gross profit margin as a decimal. In this example, divide $335,000 by $890,000 to get 0.3764. This is the gross profit margin expressed as a decimal.
3. Multiply the gross profit margin expressed as a decimal by 100 to get the company's gross profit margin for the specified time period. Concluding this example, multiply 0.3764 by 100 to find that the company's gross profit margin for 2010 equals 37.64 percent.
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