Gross Margins

Extracted Attributes

• Exclusions

  Indirect fixed costs such as rent, office expenses, and administrative costs

• Key Indicator

  Efficiency in converting raw materials or labor into income

• Primary Components

  Revenue, Cost of Goods Sold (COGS)

• Calculation Formula

  (Revenue - Cost of Goods Sold) / Revenue

• Unit of Measurement

  Percentage (%)

• Improvement Strategies

  Raising prices or reducing direct production costs

Timeline

• The All-In Podcast hosts discuss the role of gross margins in distinguishing between software and tech-enabled business models during a live episode from Davos. (Source: Document fb009ead-fe3d-4f58-bfc8-0a9d2c19cec9)

  2024-01-19

Gross margin

Gross margin, or gross profit margin, is the difference between revenue and cost of goods sold (COGS), divided by revenue. Gross margin is expressed as a percentage. Generally, it is calculated as the selling price of an item, less the cost of goods sold (e.g., production or acquisition costs, not including indirect fixed costs like office expenses, rent, or administrative costs), then divided by the same selling price. "Gross margin" is often used interchangeably with "gross profit", however, the terms are different: "gross profit" is technically an absolute monetary amount, and "gross margin" is technically a percentage or ratio. Gross margin is a kind of profit margin, specifically a form of profit divided by net revenue, e.g., gross (profit) margin, operating (profit) margin, net (profit) margin, etc.

Web Search Results

• Gross Margin: Definition and How to Calculate | The Motley Fool

  Gross margin -- also called gross profit margin or gross margin ratio -- is a company's sales minus its cost of goods sold (COGS), expressed as a percentage of sales. Put another way, gross margin is the percentage of a company's revenue that it keeps after subtracting direct expenses such as labor and materials. The higher the gross margin, the more revenue a company has to cover other obligations -- like taxes, interest on debt, and other expenses -- and generate profit. [...] Margins are metrics that assess a company's efficiency in converting sales to profits. Different types of margins, including operating margin and net profit margin, focus on separate stages and aspects of the business. Gross margin gives insight into a company's ability to efficiently control its production costs, which should help the company to produce higher profits farther down the income statement. [...] Gross margin measures the percentage of revenue after direct costs are subtracted. Calculating gross margin involves subtracting COGS from revenue and dividing by total revenue. High gross margin indicates more funds are available for other expenses and profit generation. These 10 Stocks Could Mint the Next Wave of Millionaires ›

• Gross margin - Wikipedia

  Gross margin, or gross profit margin, is the difference between revenue and cost of goods sold (COGS), divided by revenue. Gross margin is expressed as a percentage. Generally, it is calculated as the selling price of an item, less the cost of goods sold (e.g., production or acquisition costs, not including indirect fixed costs like office expenses, rent, or administrative costs), then divided by the same selling price. "Gross margin" is often used interchangeably with "gross profit", however, [...] Higher gross margins for a manufacturer indicate greater efficiency in turning raw materials into income. For a retailer it would be the difference between its markup and the wholesale price. Larger gross margins are generally considered ideal for most businesses, with the exception of discount retailers who instead rely on operational efficiency and strategic financing to remain competitive with businesses that have lower margins. Two related metrics are unit margin and margin percent: [...] In a more complex example, if an item costs $204 to produce and is sold for a price of $340, the price includes a 67% markup ($136) which represents a 40% gross margin. This means that 40% of the $340 is profit. Again, gross margin is just the direct percentage of profit in the sale price.

• Gross Margin | Formula + Calculator - Wall Street Prep

  ## How to Calculate Gross Margin The gross margin is the revenue remaining upon subtracting cost of goods sold (COGS), expressed as a percentage. Calculating a company’s gross margin involves dividing its gross profit by the revenue in the matching period. The two metrics necessary to calculate the gross margin—the gross profit and net revenue—are each recognized on the GAAP-based income statement. [...] The gross margin is a measure of profitability that compares a company’s gross profit to its revenue in the corresponding period. The formula to calculate gross margin divides a company’s gross profit in a given period by its revenue. The gross profit margin is the ratio between gross profit and revenue, expressed as a percentage. The gross margin reflects the percentage of each dollar of revenue that a company retains as gross profit. [...] Gross Margin → The gross margin only accounts for one outflow of cash – the cost of goods sold (COGS) – which are the direct costs associated with the production of revenue. The gross profit margin, contrary to the net profit margin, is largely unaffected by financing decisions or discretionary accounting policies, such as useful life assumptions for purchases of PP&E or differences in the tax rate, making it better suited for peer comparisons, as there is far lower potential for manipulation

• Gross Margin: Definition, Example Calculations, and Interpretation

  Companies can improve their Gross Margins via three main strategies: 1) Raise Prices – If a widget costs $10 to manufacture, but the company can charge $25 for it rather than $20 without impacting demand or unit sales, it can instantly boost its Gross Margin. [...] Conversely, industries like retail or manufacturing, where the cost of sales includes raw materials and significant labor, usually have lower Gross Margins. Therefore, you should always compare a company’s Gross Margins to the margins of similarly sized companies in the same industry (i.e., the comparable public companies) to understand the company’s profitability, operational efficiency, and cost management relative to its peers. ## How Companies Can Improve Their Gross Margins [...] The Gross Margin is critical in some industries and an afterthought in others. From a financial modeling perspective, such as when you build 3-statement models or other forecasts, you normally assume that a company’s overall trend in Gross Margins continues into the future – unless the company plans to change its business model or operational profile.

• Gross Margin: Definition, Example, Formula, and How to Calculate

  Gross margin is the percentage of a company's revenue that's retained after direct expenses such as labor and materials have been subtracted. It's an important profitability measure that looks at a company's gross profit as compared to its revenue. Gross profit is determined by subtracting the cost of goods sold from revenue. The higher the gross margin, the more revenue a company retains. It can then use the revenue to pay other costs or satisfy debt obligations. [...] ## How Do You Calculate Gross Margin? Gross margin is expressed as a percentage. First, subtract the cost of goods sold from the company's revenue. This figure is the company's gross profit expressed as a dollar figure. Divide that figure by the total revenue and multiply it by 100 to get the gross margin. ## What's the Difference Between Gross Margin and Gross Profit? [...] Gross margin shows how much profit a company keeps after covering production costs. A higher gross margin means more money retained from each dollar of sales. Falling gross margins may push companies to cut costs or raise prices. Gross margin looks only at revenue and COGS, unlike net margin, which includes all expenses.