Step 1: Understand what gross profit margin means. It is the difference between sales revenue and the cost of goods sold (COGS), expressed as a percentage of sales revenue.
Step 2: Recognize that a low gross profit margin means that the costs to produce goods are high compared to the sales made from those goods.
Step 3: Realize that high production costs can come from expensive materials, labor, or inefficient processes.
Step 4: Conclude that a low gross profit margin suggests the company is not making enough profit from its sales after covering production costs.
