Gross margin
Gross Profit Margin
Gross margin is what remains of each rupee of sales after paying for the raw materials and direct costs of making the product, before any operating expense.
Formula
Gross margin
Gross Margin (%) = (Sales − Cost of Goods Sold) ÷ Sales × 100
Benchmark: Stable or rising is the signal; the level depends entirely on the industry
Reading the number
Gross margin is the first of the three margins on the way down the profit and loss statement, and the purest measure of pricing power. A company that can raise prices without losing customers, or buy inputs cheaper than rivals, shows it here before it shows anywhere else.
Read the trend more than the level. A falling gross margin means input costs are rising faster than prices, or the company is discounting to hold volume. Either way, the problem starts at the top of the statement and everything below it inherits it.
Indian example
Related ratios
Glossary terms
From the research
A Comparative Financial Analysis of Three Listed Companies
Three IT services leaders, five years of numbers: similar growth, very different margins and returns on capital, and their October 2026 valuations.
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ValuationPaytm: Valuing a Company With No Clean Comparable
Paytm is part payments processor, part device business, part loan distributor. Why no single peer fits, and how to value it in parts and in reverse.