If a company has a gross margin ratio of 35%, what does this indicate?

A gross margin ratio of 35% indicates that the company retains $0.35 as gross profit for every dollar of revenue generated. This ratio is calculated by taking the difference between revenue and the cost of goods sold (COGS), then dividing that figure by revenue.

A gross margin of 35% suggests that the company is able to cover its production or purchasing costs (COGS) effectively and still retains a significant portion of its revenue as profit before accounting for other operating expenses, taxes, and interest. This indicates a relatively healthy level of profitability on its core operations—higher gross margins generally imply better efficiency in production and pricing strategies, or a favorable market position for the company's products.

Understanding this, it's clear that the option related to gross profit accurately captures the essence of what the gross margin ratio represents, distinguishing it from aspects like operating expenses, debt payments, or net profits after taxes, which are addressed in the other options.