gross margin

Gross Margin

1) A company's total sales revenue minus its cost of goods sold.

2) A company's total sales revenue minus cost of goods sold, divided by the total sales revenue, expressed as a percentage.

3) In the case of an adjustable-rate mortgage, the interest rate (expressed as a percentage) that is added on to the base index rate in order to establish the actual interest rate the borrower will pay on the loan.

Notes:

1) This dollar amount represents the amount of money the company generated over the cost of producing its goods or services. This amount can then be used to pay fixed expenses such as leasehold payments and administrative expenses.

2) This number represents the proportion of each dollar of revenue that the company banks as gross profit. For example, if a company's gross margin for the most recent quarter was 35%, it would retain $0.35 from each dollar of revenue generated, to be put towards paying off general and administrative expenses and ultimately banked as net income.

3) When an adjustable-rate mortgage is constructed for a real estate transaction, a standardized index is used to establish a base interest rate and then additional percentage points are added to the rate based on the risk factors of the loan and the borrower. The rate that results is the actual interest rate the borrower will pay on the loan. Generally, the better an individual's credit rating and the lower the amount of his/her loan, the smaller the loan's gross margin will be, as the lender requires a higher gross margin (its profit margin) for higher risk loans.

See also: After-Tax Profit Margin, Adjustable-Rate Mortgage - ARM, Default Risk, Gross Income, Interest Rate, Net Income - NI, Profit Margin, Return On Equity - ROE, Return on Sales - ROS

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gross margin

See gross profit margin.