Gross Profit Percentage Law and Legal Definition

Gross profit percentage refers to profit percentage obtained on dividing the realized gain on the sale or exchange of real property by the net sales price of the property. Gross profit percentage is calculated to find out the recognized gain for the year for the purpose of tax reporting. It indicates how much above the actual cost a company sells its products.

Gross profit percentage helps in evaluating a company’s financial performance. It helps a company to find out what percentage of its earning, after actual costs for products and services will put the company in profit. A high gross profit percentage means that a company has sufficient financial resources to pay for research, product development, and other costs associated with running and growing a business.

The term "gross profit percentage" is defined under 26 USCS § 132(c) (2) (A) as the percent which:

(i) the excess of the aggregate sales price of property sold by the employer to customers over the aggregate cost of such property to the employer, is of

(ii) the aggregate sale price of such property.

Gross profit percentage shall be determined on the basis of:

(i) all property offered to customers in the ordinary course of the line of business of the employer in which the employee is performing services (or a reasonable classification of property selected by the employer); and

(ii) the employer's experience during a representative period [26 USCS § 132(c) (2)(B)].