If the gross profit percentage has decreased by 1% in a year but the net profit percentage has increased -?

Question

So the gross profit percentage of a company has decreased by 1% in a year and the net profit percentage has improved by 1% what does this mean?

Answer 1

It means that the companies expenses have gone down.

Answer 2

It probably means they have a high degree of variable costs relative to fixed costs.  And those variable costs fell, relative to revenue, in spite of a rise in Cost of Goods Sold relative to revenue.

Answer 3

the company has increased bottom-line profitability, despite an increase in cost of goods sold.

Answer 4

I am going to assume net profit is being used as "net income" which is the technical term for profit.

Gross profit is the total revenue minus the operational expenses (Direct labor and raw materials). A decrease in gross profit means that the raw materials or the direct labor (ie manufacturing costs) have gone up.

An increase in net income means that your total "profit" has increased. This could be a result of greater revenue (more sales) or reduced total expenses (less administrative expenses often referred to as SG&A or Sales, General and administrative costs; or maybe a tax break).

The bottom line is that the company has increased operational expenses (manufacturing expenses), but increased net income (profit). As stated above the increased net income could be a result of greater revenue (more sales) or lower total expenses.