What is Gross Margin?

Gross margin is the difference between a company's revenue and the cost of goods sold, expressed as a percentage of the revenue.

Gross margin is the gross profit after deducting all direct costs associated with production from net sales. It is calculated before deducting administrative expenses.

A company with a higher gross margin will be able to easily cover its debt and tax obligations. It represents the company’s ability to keep production costs under control. It also indicates how much profit is generated by the main product.

This is used for comparing reports for multiple periods to see the efficiency of the production department. Also, reports are compared with competitors to increase the efficiency of the operations. Because capital-intensive industries have a higher cost of production, gross margin calculations are only useful for certain industries.

An increase in selling price and a reduction in selling cost might improve the gross margin. Labor costs related to production and raw material costs also directly affect profit.

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Gross margin provides insight into the efficiency of the manufacturing process. Are you confused between gross margin and net margin? We will be glad to help.

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