Investing term

What is Gross margin?

Gross profit as a percentage of revenue — how much of every dollar of revenue survives direct costs.

Gross margin is gross profit as a percentage of revenue — how much of each sales dollar survives the direct cost of producing the product. It's a window into pricing power and competitive strength: high, stable gross margins often signal a strong brand or efficient operations, while thin or falling margins hint at commoditized, price-pressured products.

For example

A software firm keeping 80 cents of every revenue dollar (80% gross margin) has far more pricing power than a grocer keeping 25 cents.

Gross margin is taught hands-on in Stage 14 — Reading Financial Statements.

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Related terms

Accounts receivable (A/R)Money customers owe the company for goods or services already delivered but not yet paid.AccrualsAccounting entries that record revenue or expense before cash actually moves.Annual reportThe yearly disclosure that includes audited financials, MD&A, and footnotes — the primary source for serious investors.Balance sheetThe 'photo' statement — what the company owns, what it owes, and what's left for owners, on a single date.
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