There are many ways to measure a firm's profitability. One of the more important ones is the gross margin. This compares gross profit (sales minus cost of goods sold) with the sales figure as a percentage.
So if a firm's sales are £1m with cost of sales of £800,000, gross profit is £200,000 and the gross margin is 20% ie, (200,000/1m) x 100%. The higher the figure the better, as it indicates that the firm's core activity is profitable.
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