Gross Profit Rate

Gross margin, Gross profit margin or Gross Profit Rate is the difference between the sales and the production costs excluding overhead, payroll, taxation, and interest payments. Gross margin can be defined as the amount of contribution to the business enterprise, after paying for direct-fixed and direct-variable unit costs, required to cover overheads (fixed commitments) and provide a buffer for unknown items. It expresses the relationship between gross profit and sales revenue. It is a measure of how well each Rupee of a company's revenue is utilized to cover the costs of goods sold.

It can be expressed in absolute terms:

Gross margin = Net Sales - Cost of goods sold + annual sales return

or as the ratio of gross profit to sales revenue, usually in the form of a percentage:

Gross Profit Margin = (Revenue-Cost of goods sold)/Revenue

However in an insurance concern Gross Profit Margin is calculated by dividing underwriting results by the net earned premium.

While net earned premium is the result of gross written primium  net of premiums ceded to re- insurers, underwriting results reflect the net earned premium after deducting insurance cliams, transfers to long term ins fund etc.

Formula for Gross Profit Rate

Gross Profit Rate (Year 2009)          =          Gross Profit  * 100

                                                                        Revenue