Gross profit margin is the difference between sales revenue and the cost of goods sold. If you make $100,000 one quarter and it cost you $80,000 to make those sales, for example, your gross profit margin is $20,000. You also can express the margin as 20 percent of the sale price. With a 20 percent margin, you can assume that out of $1 million in sales, the profit margin will be $200,000. If you've suffered an inventory loss, the gross profit margin will help determine the size of the loss, which will affect subsequent margins.
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Figure out the cost of goods sold during the fiscal year prior to the point of the loss. If you sold $400,000 in inventory and your normal gross profit ratio is 20 percent, you can calculate that your cost for the period is $320,000, since 20 percent of $400,000 = .2 x $400,000 = $80,000 and $400,000 - $80,000 = $320,000.
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Add your inventory purchases during this period to the total at the beginning of the year. If your initial inventory was $650,000, say, and you purchased $200,000 more in goods, your total inventory at the time of loss was $850,000.
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3.
Subtract the cost of goods sold from the total inventory to get the loss. If your cost is $320,000 and your inventory is $850,000, your inventory loss equals $530,000.
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4.
Include the inventory losses on your income statement for the period. If the loss is small, you can include it as part of the cost of goods sold. If your losses are substantial, you create a separate account for them.
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5.
Subtract the costs of goods sold, which may now include the inventory loss, from the sales revenue for the fiscal period. This gives you an updated gross profit margin. After you subtract other operating expenses from the margin, you'll arrive at the income your business generated for the fiscal period.
