How to read expenses as a share of sales

Rent was 9% of sales last year and 7% this year, although the rent itself rose by £1,000.

A cost that stays much the same whatever the sales, such as rent, takes a smaller share as sales grow.

A cost that takes a bigger share than before has grown faster than sales, and deserves a closer look. Wages went from 17% of sales to 18%. Other expenses fell in pounds while sales rose.

The percentages fit together. Gross profit margin less total expenses as a percentage of sales gives the net profit margin.

Fernhill's gross margin was 45% last year and 40% this year. Total expenses were 33% of sales last year and 30% this year.