Gross profit margin is a key financial ratio that measures the profitability of a business by calculating the difference between total revenue and cost of goods sold (COGS) expressed as a percentage. This ratio helps measure how well a company is managing its inventory costs and pricing strategies for maximum profitability. It also signals potential red flags about the business, such as poor risk management or weak pricing power. Knowing their gross profit margin can help businesses identify areas where they can improve to boost their bottom line.
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