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Gross Margin

Gross margin, also known as gross profit margin, is a financial metric representing the percentage of revenue left after subtracting the cost of goods sold (COGS) from total revenue. It measures the profitability of a company's core business operations and indicates how efficiently it produces and sells its products or services.

What You Need To Know

The formula to calculate gross margin is: Gross Margin = (Total Revenue - Cost of Goods Sold) / Total Revenue * 100

In this formula, "Total Revenue" is the total sales or revenue the company generated, and "Cost of Goods Sold" represents the direct costs incurred in producing the goods or services sold by the company, including raw materials, labor, and manufacturing expenses.

A higher gross margin indicates a company is effectively managing its production and sales processes, as it retains a larger portion of each dollar of revenue after accounting for production costs. Conversely, a lower gross margin may indicate inefficiencies in production, pricing, or cost management.

Gross margin provides insights into the profitability of their core operations and helps management make decisions related to pricing strategies, cost control, and overall business performance. Additionally, it is often compared to industry benchmarks to assess a company's competitive position and financial health.