Profitability is usually the primary goal of all businesventures. Without profitability a business will not survive
for a long time. It is therefore important that any business
keeps track of both the current and past profitability and
projecting future profitability is very important. Profitability
is measured using the income and expenses from the
business. Income represents money generated from the
various activities of the business. One of the ratios that is
used in measuring profitability of a business or
company’s performance is the gross profit margin
(Hofstrand, 2013).
Gross profit margin measures company's manufacturing and distribution efficiency during the production
process. It is a measurement of how much of each pula
of a company's revenue is available to cover overhead,
other expenses and profits. The ideal level of gross profit
margin depends on the type of industries, the length of
time the business has been in operation and other
factors. A high gross profit margin indicates that the
company can make a reasonable profit, so long as the
company or business keeps the overhead cost in control.
On the other hand, a low gross margin indicates that the
business is unable to control its production cost
(Hofstrand, 2013; Loth, n.d).