Definition
Gross Margin
Gross margin is revenue minus the cost of goods sold, expressed as a percentage of revenue, showing the profitability of the core product before operating overheads.
Gross margin isolates how much a company earns after the direct costs of producing its goods or services, before selling, administrative and other operating expenses. A high and stable gross margin signals pricing power or low input costs.
For manufacturers, gross margin swings with raw-material prices; for services and software firms it tends to be high. Tracking gross margin trends helps analysts separate input-cost pressures from operating-efficiency issues, which show up further down at the operating and net margin lines.
Related terms
- EBITDAEBITDA is earnings before interest, tax, depreciation, and amortisation, a measure of a company's core operating profitability.
- Net MarginNet margin is profit after tax expressed as a percentage of revenue — it shows how many paise of every rupee of sales a company keeps as bottom-line profit.
- Cost of Goods Sold (COGS)Cost of Goods Sold is the direct cost of producing what a company sells, covering raw materials, direct labour and manufacturing overheads.
- Operating MarginOperating margin is the percentage of revenue left as operating profit after the costs of running the core business, before interest and tax.
Plain-English explainer from Investdesk Investors Encyclopedia. General information, not financial advice.