Gross Margin

Gross margin is a financial metric that shows the percentage of revenue a company retains after deducting the direct costs of producing its goods or services. It is calculated by dividing gross profit by total revenue and expressing it as a percentage. A higher gross margin indicates greater efficiency and pricing power.

If a company generates $1 million in revenue and incurs $600,000 in production costs, its gross profit is $400,000, giving a gross margin of 40%. Traders using fundamental analysis often compare gross margins across companies in the same industry to identify which businesses operate more efficiently. A consistently improving gross margin can signal that a company is scaling well or successfully managing costs, which may support a bullish trading thesis on the stock.