Gross Margin

Gross margin is the percentage of a company's gross profit (total sales revenue minus its cost of goods sold [COGS]) divided by total sales revenue. It is important because it reflects the core profitability of a company and particularly illustrates the financial success of a product or service. It reveals how much money is left over for operations, expansion, debt repayment, distributions to owners and shareholders and other miscellaneous expenses, after costs have been covered. Companies with higher gross profit margins have a competitive edge over rivals, whether this is because they can charge a higher price for goods/services (as reflected in higher revenues) or because they pay less for direct costs (as reflected in lower costs of goods sold).

Calculated as: (Gross profit ÷ Sales revenue) X 100.