Gross Margin

How to read it

Gross Margin is Gross Profit divided by Revenue. Gross Profit is revenue less the cost of the goods or services sold, so the ratio shows the share of every sale left over to pay for everything else — overheads, research, interest, taxes and profit. It rises when a company can raise prices or cut its production costs, and falls when input costs climb, discounting spreads or the sales mix moves towards cheaper products. stockrow shows it for each quarter, each year and the trailing twelve months.

What is typical

Software, pharmaceutical and branded consumer companies tend to keep a large share of each sale, because the cost of producing one more unit is low. Retailers, distributors, manufacturers and commodity producers usually work on much thinner margins and depend on volume instead. Because the level depends so heavily on the kind of business, compare the value with the sector medians rather than with companies in other industries.

Pitfalls

Companies differ in which costs they put into the cost of sales, so two firms in the same industry may not be strictly comparable. A single quarter can be skewed by seasonal pricing or inventory adjustments. Gross Margin also feeds the Piotroski F-Score on stockrow, which awards a point when it is up on a year earlier.