Which financial metric illustrates the gross profit earned by the firm as a percentage of its sales?

The gross profit margin is a financial metric that measures the gross profit earned by a firm as a percentage of its sales revenue. It is calculated by taking gross profit, which is total sales minus the cost of goods sold (COGS), and dividing it by total sales, then multiplying by 100 to express it as a percentage. This metric is critical because it shows how efficiently a company is producing its goods and managing its production costs relative to its sales revenue.

A higher gross profit margin indicates that a company retains more money from each sale to cover other expenses, while a lower margin might suggest pricing pressures or increased costs of production. It is particularly useful for comparing the profitability of companies within the same industry, as it highlights operational performance regarding production costs and sales prices.

In contrast, net income is the profit after all expenses have been deducted, not solely focused on gross profits in relation to sales. Dividends per share measure the amount distributed to shareholders and do not relate directly to profit margins. Operating income also goes beyond gross profit and takes into account operating expenses but does not specifically reflect the gross profit earned relative to sales. Thus, the gross profit margin is the most accurate measure of gross profit as a percentage of sales.