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GPP Ratio

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Gross Profit Percentage

Determining operating performance:

Summary of the GPP Ratio. Abstract

 

The Gross Profit Percentage (GPP) is a ratio that can be derived from an income statement and reveals the profit left over from operations after all variable costs have been subtracted from revenues. It can be used for determining Operating Performance, because it shows the production efficiency in relation to the prices and unit volumes at which products or services are sold.


 Gross Profit Percentage

Comparison of the ratio provides the most meaningful information. For example:

A common GPP ratio calculation goes as follows: Add together the costs of overhead, direct materials and direct labor; subtract the total from revenue; and then divide the result by revenue. A problem with this approach is that many of the production costs are not truly variable.

In order to avoid this, an alternate calculation formula only includes direct materials in the formula, shifting the other production costs into operational and administrative costs. This obviously yields a higher gross margin percentage.


👀Here you can find more about company performance and the Gross Profit Percentage.


Compare with Gross Profit Percentage:  Operating Profit Percentage


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