Question

Gross Profit Margin (GPM) e.g., 53%:

A. GPM is unrelated to financial performance.
B. GPM represents the percentage of net income.
C. GPM measures the profitability of a company's core operations.
D. GPM is only relevant for service-based industries.

Answer 1

Gross Profit Margin (GPM) measures the profitability of a company's core operations by showing the percentage of revenue over the cost of goods sold, applicable to all industries.

Step-by-step explanation:

The Gross Profit Margin (GPM) represents C. GPM measures the profitability of a company's core operations. This financial metric shows the percentage of revenue that exceeds the cost of goods sold (COGS), which essentially measures how efficiently a company uses labor and supplies in the production process. GPM is a crucial indicator for companies in all industries, not just service-based ones, as it provides insight into a company's financial health by indicating how much profit is made after accounting for the costs directly associated with making the products sold.

For example, if a company's GPM is 53%, it means that 53% of its revenue is left after accounting for the COGS. This metric allows comparisons between different companies or industries to analyze their operational profitability.