The gross profit percentage is the ratio to watch if you are worried about increased competition. If the company lowers its prices to retain market share without lowering its cost of goods sold, its gross profit percentage will:.

1. Decrease

2. Increase

3. Stay the same

1. Decrease

Explanation:

Gross profit percentage is the amount of money earned from the sales of goods or rendering of services expressed in percentages. It is the amount earned expressed in percentage after removing the total cost of production from revenue earned.

Formula for calculating

= (Gross profit/Total sales) × 100.

Thus, when there's a decrease in the price of goods with the cost of producing that goods remaining constant, the gross profit percentage decreases. Also, when there's an increase in price with cost remaining constant, the gross profit also increases.

1) Decrease

Explanation:

The gross profit margin ratio is a profitability ratio that basically shows us how well the company is using its assets to cover its production costs. It is calculated by subtracting total revenue from cost of goods sold and then dividing by total revenue:

As any ratio, it doesn't tell anything by itself but it is very useful when comparing different companies that operate in the same industry. It basically tells us how profitable our business is when only required to cover production costs (COGS). It is always used together with the net profit margin because it will tell us where the company is spending the most.

If the company has a very good (high) gross profit ratio but a very low net profit ratio, it means that fixed costs are probably too high.

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