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Investopedia Video: Gross Margin

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    A business gross margin is a rough gauge of how profitable its operations are it
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    measures how much sales revenue the company retains after all the direct
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    costs associated with making a product or providing a service are accounted for
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    direct costs refer to materials labor
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    and expenses related to producing a
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    product overhead expenses such as
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    management salaries and the cost of
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    building a corporate headquarters are
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    not direct costs the greater of business
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    margin the more money it will have to
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    invest in other important areas such as
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    marketing and research gross margin is
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    generally quoted as a percentage of the
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    company sales just take revenue
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    generated for a given period subtract
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    the production expenses otherwise known
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    as the cost of goods sold and divide
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    this entire figure by revenue let's take
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    a look at Rose candy company the company
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    earns annual revenue of 1 million
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    dollars and has a cost of goods sold
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    totaling $700,000 this gives the company
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    a gross margin of 30%
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    this means that Rose candy retains 30
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    cents from each dollar of total revenue
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    made say that Rose candies main
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    competitor Lilly chocolate enjoys a
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    margin of close to 40 percent this could
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    mean that Lilly chocolate has lower
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    input costs such as raw materials and
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    wages for its factory workers it could
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    also mean that Lilly chocolate gets away
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    with selling and higher prices by
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    offering specialty items in either case
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    Rose candy will likely want to adjust
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    its strategy to remain competitive in
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    the long run while it doesn't give an
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    investor the whole picture when it comes
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    to profitability gross margin is extremely useful as a yardstick to make
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    sure that a company is operating with maximum efficiency.
Title:
Investopedia Video: Gross Margin
Description:

A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. The gross margin represents the percent of total sales revenue that the company retains after incurring the direct costs associated with producing the goods and services sold by a company.

Learn more: http://www.investopedia.com/terms/g/grossmargin.asp
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Video Language:
English
Duration:
01:54

English subtitles

Revisions

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