Gross margin

Gross margin is the cleanest single read on pricing power. It measures what is left after the direct cost of delivering the product, before any of the costs of running a company as an institution: sales teams, research, head office.

It varies enormously by business model and barely at all within one. A software company keeps 75 cents of every dollar; a grocer keeps 25. Comparing across that line tells you nothing, and comparing a company against its own history tells you a great deal.

Revenue of $1,000m and cost of revenue of $400m.

1. 1Gross profit is 1,000 - 400 = $600m.
2. 2600 / 1,000 = 0.60.

Every example in this glossary describes the same imaginary company, so the figures join up as you move between metrics.

• A rising gross margin usually means pricing power, a better product mix, or genuine scale in production.
• A falling one is worth chasing down. Input costs, discounting and mix shift all look identical here and mean very different things.
• Compare only within an industry, and ideally against the same company five years ago.

• What sits in cost of revenue rather than operating expense is partly a policy choice, so two companies in the same industry can draw the line differently.
• Companies that do not report a cost of revenue line at all, which includes many banks and insurers, have no meaningful gross margin.

Computed in the Financials tab as one of the profitability ratios, from revenue and cost of revenue as filed. It does not feed the scorecard directly; the operating margin trend does.

The full methodology covers where the figures come from, how the statements are normalised, and what is deliberately left unadjusted.