Gross Profit Margin Definition: What It Means and Why It Matters
Warren Team
Continue learning
Related articles
- GMV (Gross Merchandise Value): What It Means and Why It Matters for E-Commerce Investors
- Auditability: What It Means and Why It Matters in Finance and Technology
- ALCO Definition: What an Asset-Liability Committee Does and Why It Matters
- Additional Insured: What It Means in Business Insurance and Why It Matters
Key terms
- Profit MarginA financial metric that measures what percentage of revenue a company keeps as profit after accounting for costs and expenses. There are several types of profit margin, including gross margin, operating margin, and net margin, each measuring profitability at different levels of the business. Higher profit margins generally indicate a more efficient and financially healthy business, though acceptable margins vary significantly by industry.
- MarginBorrowed money from a broker to purchase securities. Amplifies both gains and losses. Requires a margin account and maintaining minimum equity levels to avoid margin calls.
- Gross MarginThe percentage of revenue remaining after subtracting the direct costs of producing goods or services, known as cost of goods sold (COGS). Gross margin measures how efficiently a company produces its products and is calculated by dividing gross profit by total revenue. A higher gross margin means the company retains more money from each dollar of sales to cover operating expenses, debt, and profit.
- Gross IncomeTotal income earned before taxes and deductions. For individuals, it includes wages, tips, investment income, and other earnings.
Get your first personalized plan in minutes
Free to start, no credit card required. Warren reads your accounts, it never moves money.