Which formula correctly represents the gross margin ratio?

The gross margin ratio is a key financial metric that helps assess a company's financial health by showing the percentage of revenue that exceeds the cost of goods sold (COGS). It is calculated using the formula gross profit divided by revenue.

Gross profit is derived from subtracting COGS from total revenue, providing insight into how well a company is managing its production costs relative to its sales. By expressing gross profit as a percentage of total revenue, the gross margin ratio indicates how much money is left over from sales after accounting for the direct costs of producing the goods or services sold. A higher gross margin ratio typically signifies greater efficiency and profitability, which are crucial for the long-term viability of a business.

This understanding highlights the importance of the selected formula as it directly relates gross profit to revenue, emphasizing the core relationship between sales and production costs essential for evaluating business performance.