Which measure shows operational efficiency by comparing gross profit to gross revenue?

The measure that indicates operational efficiency by comparing gross profit to gross revenue is gross margin. Gross margin reflects the percentage of revenue that exceeds the cost of goods sold (COGS), providing insight into how well a company is utilizing its resources in the production process to generate profit. It essentially shows how much of each dollar of revenue is available to cover operating expenses and generate profit after the direct costs associated with producing goods are accounted for.

Calculating the gross margin involves dividing gross profit by gross revenue and then multiplying by 100 to express it as a percentage. A higher gross margin percentage typically indicates a company has a solid pricing strategy and effective control over its production costs, leading to better operational efficiency.

In contrast, net income measures the total profit of a company after all expenses, taxes, and costs have been deducted from total revenue. Operating margin takes it a step further, assessing the earnings derived from core business operations as a percentage of revenue, but it also includes operating expenses beyond COGS. Net sales refers to the total revenue a company earns after deducting sales returns and allowances, but it does not directly show efficiency in the same way that gross margin does.