Introduction to Inventories and the Classified Income Statement

As discussed earlier, you can calculate the gross margin percentage by using the following formula:

$\text { Gross margin percentage }=\frac{\text { Gross margin }}{\text { Net sales }}$

To demonstrate the use of this ratio, consider the following information from the 2000 Annual Report of Abercrombie & Fitch.

Abercrombie's gross margin held at a rather high 41-43 per cent over those three years.

You should now understand the distinction between accounting for a service company and a merchandising company. The next chapter continues the discussion of merchandise inventory carried by merchandising companies.