# Calculate Gross Margin ## Gross Margin Meaning

Net sales less cost of goods sold (COGS) equals gross margin . In other words, it is the amount of money a firm keeps after deducting the actual expenses of creating the goods and services it sells.

The larger the gross margin, the more Cash a firm keeps, covering other expenses or repaying debt. Net sales are calculated by deducting gross income from returns, allowances, and discounts.

## Gross Margin Formula

Gross Margin GM =Net Sales – COGS

Or

Gross Margin GM =Revenue – COGS

what is balance sheet ?

## difference between gross margin and net profit

Gross margin and net margin are profitability measures used to analyze a company’s financial health. Gross profit margin and net profit margin are both stated in percentage terms and quantify profitability as a proportion of sales for a given time.

Net profit = Net Sales – COGS – Expenses

another calculation to show relation between Gross and Net Profit:

Net Profit = Gross Margin – Expenses

• Profit margins compare revenues to expenses of goods sold to determine how effectively a firm can convert sales into profits.
• Gross profit margin is calculated by dividing net sales by net sales less cost of goods sold. 