Gross margin ratio definition including break down of areas in the definition. Analyzing the definition of key term often provides more insight about concepts. Gross margin ratio can be defined as: Also called gross profit ratio. Gross margin (net sales minus cost of goods sold) divided by net sales. Gross profit ration or gross margin ratio is the ration of gross profit or gross margin over to sales meaning gross profit ratio or gross margin ratio is gross profit or gross margin divided by sales. Gross profit ratio or gross margin ration can be very useful because the ratio tells us how much we are taking away in gross profit or gross margin for each dollar in sales, the relationship between sales and cost of goods sole being very important, a relationship represented by gross profit or gross margin. A gross profit or gross margin ratio also helps us compare this performance number with other companies of different sales levels.
