Accounting ratio
Gross margin
How much of every ringgit of sales is left as gross profit after the cost of the goods sold.
What the exam boards say
- Cambridge 0452 and 0985, 2027 to 2029: listed. Formula as printed: Gross profit / Revenue x 100.
- Cambridge, 2026 syllabus: listed. Formula as printed: Gross profit / Revenue x 100.
- Pearson Edexcel 4AC1: named as "gross profit percentage"; the specification prints no formula.
- OxfordAQA 9215: named as "gross profit margin %"; the formula is in OxfordAQA's separate guide, Formulae for accounting ratios.
Cambridge states that for 2027 to 2029 the printed formulas are the only ones accepted in candidate responses, so use the wording above for a Cambridge paper.
Sources: Cambridge IGCSE Accounting 0452: syllabus for 2027-2029 (Version 1), pages 18, 21; Cambridge IGCSE Accounting 0452: syllabus for examination in 2026 (Version 2, December 2025), page 19; Pearson Edexcel International GCSE in Accounting (4AC1) specification (FT Sept 2017) (Issue 1, October 2016), page 21; OxfordAQA International GCSE Accounting (9215) specification (FT Sept 2024) (Version 1.2), page 18. See all sources.
Worked example
Gross profit RM20,000 on revenue RM50,000 → (20,000 ÷ 50,000) × 100 = 40%.
How to interpret it
A higher gross margin means more profit per sale. Compare it over time and against similar businesses; a falling margin may signal rising costs or discounting.
Using it in analysis
A gross margin is only useful next to something else: the same business in earlier years, or a similar business selling the same kind of goods. Tracked over three or four years, it shows whether the gap between selling prices and buying prices is holding steady.
A rising margin usually points to higher prices, cheaper supplies or tighter control of the cost of goods sold. A falling margin suggests discounting, supplier price rises that were not passed on, stock theft or wastage, or an error in valuing closing inventory. Overheads are not in the figure, so a change here is a clean signal about buying and pricing.
Example: a trader has revenue of RM240,000 and gross profit of RM72,000. The gross margin is (72,000 ÷ 240,000) × 100 = 30%. The next year revenue rises to RM300,000 but gross profit is RM75,000, so the margin is (75,000 ÷ 300,000) × 100 = 25%. Sales and gross profit both grew, yet the margin fell by five percentage points. The business has probably won sales by cutting prices or has paid more for its goods.
Common mistakes: treating gross margin as a verdict on the whole business. Rent, wages and interest are not included, so a healthy margin can sit above an overall loss. It also says nothing about scale: a 40% margin on tiny sales can bring in less than 20% on large sales. Comparing a jeweller with a grocer is not fair either, because the margins of different trades differ naturally.
Read it with mark-up. Both use the same gross profit, but margin is a percentage of sales and mark-up is a percentage of cost. If the owner adds a fixed mark-up to cost but the margin keeps falling, some sales are being made below the intended price or stock is going missing. A service business may have little cost of sales, so its gross margin is high or hardly meaningful, and profit margin matters more.
Limitations
It ignores expenses below gross profit, so a healthy gross margin does not ensure an overall profit.
Related ratios
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