Gross Profit Margin

According to Investopedia, Gross profit margin is a financial metric used to assess a company's financial health and business model by revealing the proportion of money left over from revenues after accounting for the cost of goods sold (COGS). In other words, it's a measure (ratio) of how much a company keeps of every dollar that comes into the business.

The Formula:
Gross Profit Margin = (Revenue - Cost of Goods Sold) / Revenue

Why is this important? No one number is going to make or break a company, but the more information that you have, the better equipped you are to make sound business decisions. That said, this number can be used to help compare yourself to other companies in your industry. It won't give you the whole picture, but it will help to show whether or not you're on par with the standard. Outside of comparing youreself to the industry, this metric can and should be used internally to let you know that you're either on track or off track in regards to profitability.

To be more specific, if you sell a widget for $30 and it cost you $5 to make, then your Gross Profit Margin on the product would look something like this:

Gross Profit Margin = ($30 - $5) / $30 or 83%

83% is good, but what if the Cost of Goods Sold was $20? Then your Gross Profit Margin is 33% which is a far cry from 83%. Remember though that the lower margin may mean higher quality and lower returns/replacements/refunds/repairs. Therefore, this number must be viewed in light of the overall strategy.

What to remember: Numbers/Ratios/Metrics, however you say it, don't tell the whole picture, but are an invaluable tool and resource for analyzing the health of a company.