Gross Margin: formula and how to read it

Share of sales left after making the product. Trailing gross profit divided by revenue.

Stock Meadow groups it under Profitability, and shows it in tables as Gross margin.

Gross margin = gross profit ÷ revenue over the trailing twelve months, where gross profit = revenue − cost of goods sold

A company with $400 million of revenue and $240 million of gross profit has a gross margin of 60%. The numbers are made up for illustration.

A higher gross margin leaves more money to cover running costs and profit. Software and branded goods tend to have high gross margins; retailers and manufacturers tend to have lower ones.

When Stock Meadow ranks stocks, a higher figure scores better.

• Companies classify costs differently, so gross margins are only comparable within an industry.
• Banks and insurers do not report gross profit, so it is blank for them.
• A high gross margin says nothing about overhead: operating margin shows what is left after those costs.

How Stock Meadow handles gaps. Usually blank when the company doesn't report gross profit.

Treat any single metric as one clue, and read the company's financial statements before drawing a conclusion. Stock Meadow's figures are research tools based on reported data, not investment advice.

In Weighted ranking, Z-score composite and Balanced (no weak link), you choose the metrics and weights yourself, so you can include it in a custom score.

No fixed-recipe model scores it.

Read about every scoring model on the scoring models page.

• Operating Margin: share of sales left after running the business.
• Free Cash Flow Margin: share of sales that becomes spare cash.
• Price-to-Sales Ratio (P/S): what you pay for each dollar of sales.

What is a good gross margin?

It depends on the industry. Compare a company with similar businesses and with its own trend. A rising gross margin suggests pricing power or falling costs.

Is a higher or lower Gross margin better?

When Stock Meadow ranks stocks, a higher figure scores better. That is a ranking convention, so read Gross margin alongside other measures and compare similar companies.

Why is Gross margin blank for some stocks?

It is usually blank when the company doesn't report gross profit. Stock Meadow leaves the figure blank rather than guessing it.