Gross Margin

Valuation & Fundamentals

Gross profit (revenue minus the cost of goods sold) as a percentage of revenue.

It shows how much it costs to make the product or deliver the service, and so hints at pricing power. It is naturally high in industries like software and low in industries like retail, so the most meaningful comparison is within the same sector and against the company's own history.

Example

$100 Million of Revenue

Cost of Goods Sold%60
Gross Profit%40

With revenue of $100 million and cost of goods sold of $60 million, gross profit is $40 million and the gross margin is 40%.

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