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Fundamental

Gross Margin

Revenue minus cost of goods sold, divided by revenue — the pricing-power signal.

Definition

Gross margin reflects how much of each dollar of revenue is left after paying the direct costs of producing the product or service. High and stable gross margins (60%+ for software, 35%+ for branded consumer, 20%+ for hardware) indicate pricing power and competitive moat. Margin trend is even more important than the level: expanding gross margin signals strengthening competitive position, contracting margins almost always precede deteriorating fundamentals.

Formula

Gross Margin = (Revenue - COGS) / Revenue
             = Gross Profit / Revenue

Worked example

Costco runs a 13% gross margin (low margin, high volume); Apple runs ~45%; Microsoft runs ~70%. Each business model is healthy at its respective level — what matters is stability and trend versus competitors.

How ARIA Analyst uses it

ARIA flags companies where gross margin has contracted for 4+ consecutive quarters as a yellow flag in the Fundamental Agent.

Related terms

  • EBITDA

    Earnings before interest, taxes, depreciation and amortisation — operating cash earnings proxy.

  • Return on Equity (ROE)

    Net income divided by shareholders’ equity — profitability per dollar of equity capital.

  • Return on Invested Capital (ROIC)

    NOPAT divided by total invested capital — true return on operating capital, independent of capital structure.

  • EV/Sales

    Enterprise value to revenue — valuation lens for companies without earnings yet.

See Gross Margin in action on any asset

ARIA Analyst computes Gross Margin automatically as part of a hybrid multi-agent investment report — 5 deterministic scoring agents plus AI augmentation (ML ensemble, Bull vs Bear debate, 10 Deep Search agents on Premium). Get yours in seconds.

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