Glossary
Gross Margin
Gross profit as a percentage of sales
Gross margin is gross profit divided by revenue. Keep 30 from every 100 in sales and it is 30%. Being a ratio rather than an amount, it compares across companies of any size.
A high margin means the company can charge a premium. Strong brands, absent substitutes and technical barriers produce high figures — one of the ways an economic moat shows up numerically.
Levels differ enormously by sector. Software and pharmaceuticals commonly run at 70-80%, distribution and construction at 10-20%. A low figure means a different business model, not a bad company.
The direction is what to watch. A margin holding steady or rising over years indicates pricing power; one falling steadily signals losing ground to competition.
It shows most clearly during inflation. Companies able to pass rising costs into prices protect the margin, while those that cannot see it visibly eroded. Inflation is where corporate strength gets tested.