- Financial Ratio (Profitability)
- Gross Margin
General
Financial Ratio (Profitability)
Financial Ratio (Value)
Technical
Test & Review
Gross Profit Margin
The Gross Profit Margin is a measure of how much income a company has left after paying all direct production expenses. It is calculated as Gross Profit divided by Revenue. According the source, the Gross Profit margin could also be called GP, Gross Margin or Gross Profit Rate.
Formula of the Gross Profit Margin
Interpretation of the Gross Profit Margin
Gross Margin is calculated as annual Total Revenue minus annual Cost of Goods Sold (COGS) divided by annual Total Revenue and multiplied by 100. The gross margin doesn't include operating expenses like salaries, advertising costs or taxes. This is the most fundamental level.
It is a good indication of how profitable a company is at the most fundamental level. Companies with higher gross margins will have more money left over to spend on other business operations, such as research and development or marketing. A higher profit margin is always desirable since it means the company generates more profits from its sales, but the Gross Margin could never exceed 100%. Nevertheless, a negative gross margin is possible when the cost of production exceed total sales. It can be an indication of a company's inability to control costs
- - Gross Margin lower than 0% : Inability to control costs
- - Gross Margin lower than industry's average : Less profitable than competitors
- - Gross Margin greater than industry's average : More profitable than competitors
- - Gross Margin greater than 100% : Impossible
As shown in the table below, it is important to compare the gross profit margin withing the same industry. The formula of Gross Margin is directly linked to the COGS, the COGS depends on the products delivered by the company. The industries with the highest gross profit marge are in the Finance Sector, Intenet & Software Sector. At the inverse the lowest gross profit margin could be find for Farming, Construction or Automobile Manufacturers. But looking at the Gross Profit Margin isn't enough, you should also look the Net Profit Margin and Operating Profit Margin to understand the financial flux of an asset.
Average Gross Profit Margin by Industry in the United States
| Industry | Average Gross Profit Margin | Average Net Profit Margin | Number of companies |
|---|---|---|---|
| Advertising Agencies | 45.9% | -9.7% | 22 |
| Aerospace & Defense | 27.6% | 5.1% | 47 |
| Agricultural Inputs | 31.8% | 6.9% | 11 |
| Airlines | 48.1% | 1.2% | 13 |
| Apparel Manufacturing | 45.4% | 3.5% | 17 |
| Apparel Retail | 39.9% | 3.7% | 29 |
| Asset Management | 82.6% | 23.5% | 74 |
| Auto Manufacturers | 11.5% | 5.7% | 17 |
| Auto Parts | 21.8% | 1.7% | 45 |
| Auto & Truck Dealerships | 27.3% | 5.2% | 14 |
| Banks - Diversified | 88.7% | 26.3% | 6 |
| Banks - Regional | 99.8% | 27.7% | 278 |
| Beverages - Non-Alcoholic | 42.5% | 11.3% | 10 |
| Beverages - Wineries & Distilleries | 40.2% | 8.6% | 9 |
| Biotechnology | 86.2% | -266.5% | 517 |
| Broadcasting | 40.1% | -2.9% | 17 |
| Building Materials | 28.7% | 15% | 7 |
| Building Products & Equipment | 30.4% | 8.9% | 31 |
| Business Equipment & Supplies | 32.1% | 2.9% | 7 |
| Capital Markets | 84.5% | 12% | 32 |
| Chemicals | 18.7% | 5.5% | 17 |
| Coking Coal | 35.7% | N/A | 4 |
| Communication Equipment | 40.1% | -6.2% | 53 |
| Computer Hardware | 35.6% | -2.4% | 28 |
| Conglomerates | 29% | 1.8% | 11 |
| Consulting Services | 41.6% | 5.4% | 16 |
| Consumer Electronics | 29.2% | -12% | 12 |
| Credit Services | 84% | 22.4% | 44 |
| Department Stores | 33.4% | 2.9% | 5 |
| Diagnostics & Research | 46.1% | -117.6% | 68 |
| Discount Stores | 26% | 2.3% | 9 |
| Drug Manufacturers - General | 71.7% | 17.3% | 12 |
| Drug Manufacturers - Specialty & Generic | 48.5% | -104.6% | 52 |
| Education & Training Services | 52.1% | 5.2% | 16 |
| Electrical Equipment & Parts | 27.9% | 6% | 41 |
| Electronic Components | 31.3% | 3.4% | 29 |
| Electronic Gaming & Multimedia | 62.8% | -10.3% | 7 |
| Electronics & Computer Distribution | 18.9% | 2.1% | 6 |
| Engineering & Construction | 16.7% | 2.8% | 30 |
| Entertainment | 46.2% | -6.3% | 36 |
| Farm & Heavy Construction Machinery | 21.8% | 6.9% | 21 |
| Farm Products | 13.4% | 5.3% | 18 |
| Financial Data & Stock Exchanges | 70.5% | 27.7% | 10 |
| Food Distribution | 14.1% | 0.6% | 9 |
| Footwear & Accessories | 44.5% | 5.5% | 11 |
| Furnishings, Fixtures & Appliances | 35.4% | 3% | 19 |
| Gambling | 55.5% | 4.9% | 12 |
| Gold | 27.4% | 3.6% | 26 |
| Grocery Stores | 27.2% | 2% | 10 |
| Healthcare Plans | 18.8% | -13.5% | 12 |
| Health Information Services | 48.5% | -47.2% | 33 |
| Home Improvement Retail | 41.9% | 1.4% | 7 |
| Household & Personal Products | 54.8% | 5% | 24 |
| Industrial Distribution | 29.4% | 5.4% | 16 |
| Information Technology Services | 37.5% | 1% | 53 |
| Insurance Brokers | 89.2% | 6.6% | 12 |
| Insurance - Diversified | 62.4% | 10.7% | 11 |
| Insurance - Life | 59.9% | 10.9% | 16 |
| Insurance - Property & Casualty | 52.1% | 7.1% | 36 |
| Insurance - Specialty | 83.5% | 18.5% | 15 |
| Integrated Freight & Logistics | 36.6% | 4.5% | 15 |
| Internet Content & Information | 60.9% | -5.3% | 37 |
| Internet Retail | 45.4% | 0.7% | 22 |
| Leisure | 40.2% | -0.2% | 25 |
| Lodging | 33% | 8% | 9 |
| Luxury Goods | 45.2% | 4.8% | 5 |
| Marine Shipping | 47.6% | 6.2% | 23 |
| Medical Care Facilities | 34% | -29.2% | 39 |
| Medical Devices | 61.3% | -92.3% | 103 |
| Medical Distribution | 19.6% | 0% | 7 |
| Medical Instruments & Supplies | 52.5% | -72.1% | 44 |
| Metal Fabrication | 23.7% | 5.3% | 12 |
| Mortgage Finance | 92.1% | 17.3% | 17 |
| Oil & Gas Drilling | 37.7% | 15.1% | 6 |
| Oil & Gas E&P | 66% | 24.2% | 63 |
| Oil & Gas Equipment & Services | 26.4% | 3.3% | 43 |
| Oil & Gas Integrated | 30.5% | 10.9% | 7 |
| Oil & Gas Midstream | 49.4% | 19.9% | 36 |
| Oil & Gas Refining & Marketing | 11.3% | 0.7% | 18 |
| Other Industrial Metals & Mining | 23.4% | 0.5% | 13 |
| Other Precious Metals & Mining | 29.4% | N/A | 11 |
| Packaged Foods | 26.6% | 4.4% | 41 |
| Packaging & Containers | 24.9% | 3.2% | 22 |
| Paper & Paper Products | 14% | -4% | 5 |
| Personal Services | 41.7% | 6.4% | 11 |
| Pharmaceutical Retailers | 40.2% | -24.2% | 8 |
| Pollution & Treatment Controls | 32.4% | 5.2% | 7 |
| Publishing | 59.1% | 5.4% | 7 |
| Railroads | 34.7% | 8.4% | 8 |
| Real Estate - Development | 39.2% | 11% | 10 |
| Real Estate - Diversified | 24.2% | N/A | 4 |
| Real Estate Services | 38.4% | 1.2% | 24 |
| Recreational Vehicles | 21.9% | 6.1% | 15 |
| REIT - Diversified | 68.6% | 16.5% | 18 |
| REIT - Healthcare Facilities | 71% | 8.6% | 16 |
| REIT - Hotel & Motel | 43% | 5.4% | 15 |
| REIT - Industrial | 72.7% | 25.7% | 16 |
| REIT - Mortgage | 92.2% | 24.8% | 35 |
| REIT - Office | 62.7% | -4.6% | 24 |
| REIT - Residential | 58.3% | 15.5% | 18 |
| REIT - Retail | 72.1% | 21.9% | 21 |
| REIT - Specialty | 55.7% | 9.4% | 15 |
| Rental & Leasing Services | 44.5% | 11.8% | 20 |
| Residential Construction | 24.4% | 11% | 21 |
| Resorts & Casinos | 50.3% | 4.7% | 19 |
| Restaurants | 39.5% | 6% | 41 |
| Scientific & Technical Instruments | 43.1% | 1.2% | 24 |
| Security & Protection Services | 38% | 4.9% | 14 |
| Semiconductor Equipment & Materials | 47.6% | 9.2% | 26 |
| Semiconductors | 43.5% | -4.3% | 64 |
| Software - Application | 62.5% | -10% | 190 |
| Software - Infrastructure | 63.1% | -5% | 87 |
| Solar | 24.8% | -15.4% | 13 |
| Specialty Business Services | 29% | 4.1% | 26 |
| Specialty Chemicals | 26.6% | 5.9% | 46 |
| Specialty Industrial Machinery | 34.3% | 9% | 73 |
| Specialty Retail | 37.5% | 1% | 42 |
| Staffing & Employment Services | 34.2% | 4.1% | 23 |
| Steel | 16.8% | 4.1% | 15 |
| Telecom Services | 58.5% | 3.3% | 33 |
| Textile Manufacturing | 18% | -4.3% | 4 |
| Thermal Coal | 38% | 28% | 9 |
| Tobacco | 39% | 8.4% | 6 |
| Tools & Accessories | 34% | 7% | 11 |
| Travel Services | 53.9% | 3.6% | 14 |
| Trucking | 49.9% | 6.5% | 12 |
| Uranium | 21.4% | N/A | 4 |
| Utilities - Diversified | 37.6% | 12.5% | 15 |
| Utilities - Regulated Electric | 36.1% | 10.5% | 25 |
| Utilities - Regulated Gas | 39.7% | 10.7% | 13 |
| Utilities - Regulated Water | 50.5% | 16.4% | 12 |
| Utilities - Renewable | 35% | 6% | 12 |
| Waste Management | 29% | 2.7% | 11 |