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What number is the denominator in gross margin percentage?

Gross margin percentage divides gross profit by net sales.

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  1. Cost of goods sold
  2. Net sales ✔
  3. Cash balance

Why: Gross margin shows the share of each sales dollar left after cost of goods sold. Divide gross profit by net sales, then express the result as a percentage.

Huh, didn't know that: A $40 gross profit on $100 net sales is a 40 percent gross margin.

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References

Answer: Net sales. Gross margin shows the share of each sales dollar left after cost of goods sold. Divide gross profit by net sales, then express the result as a percentage.

  1. IRS Publication 334, Tax Guide for Small Business www.irs.gov/pub/irs-pdf/p334.pdf
    First, divide gross profit by net receipts. The resulting percentage measures the average spread
    Checked 2026-10-11.

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