Definition

Noun: - A financial metric: Gross margin is a profitability ratio calculated as gross profit divided by net sales (or revenue). It represents the percentage of revenue that exceeds the cost of goods sold (COGS), indicating the efficiency of a company in producing its goods or the markup on its products.

Usage

Gross margin is used to analyze a company's financial health and operational efficiency. It is expressed as a percentage. - The company's gross margin improved this quarter, signaling better cost control. - Analysts pay close attention to gross margin to assess a business's core profitability.

Examples

• In financial reporting:
  • A high gross margin suggests the company can charge a premium for its products.
  • The annual report showed a gross margin of 40%.
• In business analysis:
  • We need to increase our gross margin to remain competitive.
  • The decline in gross margin was due to rising raw material costs.

Advanced Usage

• "Gross margin percentage/ratio": Often used to specify the metric is being expressed as a percentage.
  • Their gross margin percentage is industry-leading.
• "Gross margin analysis": Refers to the process of evaluating this metric over time or against competitors.
  • The CFO presented a detailed gross margin analysis to the board.

Variants and Related Words

• Gross profit (noun): The absolute dollar amount of revenue minus the cost of goods sold, which is used in the numerator of the gross margin calculation.
  • The gross profit was $1 million.
• Profit margin (noun): A broader term that can refer to various profitability ratios (e.g., operating margin, net margin).
  • Net profit margin takes all expenses into account.

Synonyms

• Gross profit margin: A direct synonym.
• Gross profit ratio: A less common but equivalent term.

Related Terms and Phrases

• "To maintain a gross margin": To keep the profitability ratio at a certain level.
  • The challenge is to maintain a gross margin while cutting prices.
• "Gross margin compression": A situation where the gross margin percentage is decreasing.
  • The industry is facing gross margin compression due to intense competition.

Noun

1. the ratio gross profits divided by net sales