Now, various expenses are incurred in order to run a business. Purchases is one of the major expenses that a business has to incur. Likewise, there are other expenses that a business has to bear in order to undertake the various business activities. These expenses are bifurcated into direct and indirect expenses.

Gross Profit

Disadvantages Of Gross Profit Ratio

1. It does not account for corporate expenses, which are often transferred to the profit and loss account.

2. It would not provide an accurate view of a business's financial performance as it ignores all indirect costs such as wages.  electricity charges. and advertising expenses, and several other things.  

3. Since cost structures and profit calculation differ among businesses, the gross profit margin is not necessarily a reliable indicator for business comparisons.'

4.  It just considers the business's viability and excludes other considerations such as a rise in manufacturing costs to acquire a supplier or a reduction in the sale price to increase the market share. etc.