What is Gross Margin?

Calculated as gross profit divided by total sales. This number represents the percentage of revenues that a company retains after paying for the basic costs of production (raw materials, employee salaries, and equipment). The Gross Margin also demonstrates the percentage of revenues that are left available to be spend on other costs such as marketing, administration, and research and development. Therefore the higher the Gross Margin, the more a company has to spend on other activities to expand the business.