Gross Margin

Gross Margin is the percentage of revenue a company keeps after paying for the direct costs of making its products. Think of it as profit before operating expenses like salaries and marketing. You'll see this metric in earnings reports and financial statements because it shows how efficiently a company produces goods—higher is generally better. For example, if a clothing maker sells $100 worth of shirts but spends $40 on fabric and labor, that's a 60% gross margin. It matters because it reveals whether a business has pricing power and cost control, which are signs of a healthy company. Different industries have different normal margins, so compare companies within the same sector.