gross margin


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Gross Profit Margin

A measure of how well a company controls its costs. It is calculated by dividing a company's profit by its revenues and expressing the result as a percentage. The higher the gross profit margin is, the better the company is thought to control costs. Investors use the gross profit margin to compare companies in the same industry and well as in different industries to determine what are the most profitable. It is also called the profit margin or simply the margin.

gross margin

Gross margin.

Gross margin is the percentage by which profits exceed production costs. To find gross margin you divide sales minus production costs by sales.

For example, if you want to calculate your gross margin on selling handmade scarves, you need to know how much you spent creating the scarves, and what you collected by selling them.

If you sold 10 scarves at $15 a piece, and spent $8 per scarf to make them, your gross margin would be 46.7%, or $150 in sales minus $80 in production costs divided by $150. Gross margin is not the same as gross profit, which is simply sales minus costs. In this example, it's $70, or $150 minus $80.

If you're doing research on a company you're considering as an investment, you can look at the gross margin to help you see how efficiently it uses its resources.

If the company has a higher gross margin than its competition, it can command higher prices or spend less on production. That might mean it can allocate more resources to developing new products or pursuing other projects.

gross margin

see PROFIT MARGIN, MARK UP.
References in periodicals archive ?
While gross margin always goes down with the introduction of new product lines, the good news is that the only way is up:
In fact, in a business with narrow gross margins, a 1% price decrease can cut operating return on assets in half.
Another major factor for the increased gross margin of Hon Hai in the third quarter is increased shipment of high-priced products, such as servers and storage equipment.
Put briefly, the higher the gross margin, the more profit you can make.
The half-year operating results reflect a 117-basis-point decrease in reported gross margin to 22.53% that was partly offset by a 55-basis-point reduction in OG&A expense to 17% of sales.
HPT's solution builds on a platform of Carrier Invoice Management and Reconciliation, Gross Margin Management, Contract and Tariff Management and Cost-Effective Infrastructures for Call Processing and Reporting.
Vineet Nayar, chief executive, HCL Tech, said, " We have decided to increase the wages of the employees effective from October 1, 2009 by 10 per cent and this will result in our gross margin dropping by 130 basis points for the next two quarters." HCL's employee strength was 54,443 till September- end and the firm added 665 staff in the IT services segment in the period.
Hennes & Mauritz, the world's third-biggest clothing retailer by turnover, has reported a lower-than-expected pre-tax profit and gross margin.
The adjusted quarterly operating profit of $15.8 million increased due in part to a 220 basis-point improvement in gross margin to 56.6% of sales.
The only measure that showed a strong relationship was gross margin--a higher ratio of R & D-to-sales was associated with a higher gross margin. This suggests that R & D succeeds in making products and services that incur lower costs, or with better features that can command a premium price, but that these advantages are obscured by the rest of the process, i.e., once selling, general and administrative (SG & A) expenses are added in, the performance improvement from R & D can no longer be observed.
Magazines are a vibrant and profitable supermarket product category with high gross margin performance that exceeds that of the overall store, according to a Magazine Publishers of America-commissioned study on magazine benchmarks.
It said gross margin would be 60% plus or minus a point, compared to its earlier forecast of 60% plus or minus a couple of points.