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Gross margin is a financial term used in finance to gauge how profitable a company's goods or services are. It is the percentage difference between a company's revenue and its cost of goods sold (COGS).
The formula for calculating gross margin is:
Gross Margin = (Revenue - COGS) / Revenue x 100
COGS stands for the direct expenses of manufacturing or providing those goods or services, whereas revenue is the entire amount of money a business makes from selling its goods or services.
A crucial indicator of a company's profitability and cost-management effectiveness is gross margin. It is frequently used as a benchmark when contrasting businesses operating in the same sector or industry. An organization with a large gross margin is able to sell its goods or services for more money than it costs to produce them, which is generally a good thing for investors. On the other hand, a low gross margin can suggest that a business is having trouble competing on price or is dealing with cost pressures that could hurt its profitability.
