Gross Margin

Gross Margin refers to the difference between Revenue and the Cost of Goods Sold (COGS), expressed as a percentage of Revenue. It is a measure of a company’s financial health and its efficiency in producing and selling its products. Gross Margin is calculated using the formula:

Gross Margin = (Revenue – COGS) / Revenue × 100

Example 1:

A company generates $500,000 in Revenue and incurs $300,000 in COGS. The Gross Margin would be:

Gross Margin = ($500,000 – $300,000) / $500,000 × 100 = 40%

Example 2:

Another company has $1,000,000 in Revenue and $700,000 in COGS. The Gross Margin would be:

Gross Margin = ($1,000,000 – $700,000) / $1,000,000 × 100 = 30%

Case:

Consider a retail business that sells electronics. If it sells items for a total of $200,000 and its COGS is $150,000, the Gross Margin would be:

Gross Margin = ($200,000 – $150,000) / $200,000 × 100 = 25%