How to calculate gross margin?
Gross margin is gross profit divided by revenue. You will need to calculate gross profit first, which is revenue less cost of goods sold (step #1 below):
Both gross profit ($) and gross margin (%) are used to assess how much money the company makes on each dollar of revenue after factoring in the cost to make a product. Cost of goods sold includes raw materials, direct labor, and manufacturing overhead.
Back To All Questions
You might also be interested in...
-
How to calculate Net Working Capital (NWC)?
Teaches you how to calculate net working capital.
-
As a seller, is it better to have a higher or lower EBITDA multiple?
Sellers want to maximize the EBITDA multiple. Buyers want the opposite – they want as low of an EBITDA multiple as possible. Business brokers will often use EBITDA multiples from recent transactions in the industry to understand what EBITDA multiple a buyer might be willing to pay when they set the purchase price. The visual...
How to calculate Net Working Capital (NWC)?
Teaches you how to calculate net working capital.
As a seller, is it better to have a higher or lower EBITDA multiple?
Sellers want to maximize the EBITDA multiple. Buyers want the opposite – they want as low of an EBITDA multiple as possible. Business brokers will often use EBITDA multiples from recent transactions in the industry to understand what EBITDA multiple a buyer might be willing to pay when they set the purchase price. The visual...
