Gross margin (GMgn%) is a profitability metric that evaluates a company's gross profit relative to its revenue or sales, expressed as a percentage. The higher the gross margin, the more capital the company retains, which can be utilized to cover other expenses or reward shareholders.
We provide two versions of the gross margin metric: GMgn% and GMgn%_GAAP. The difference between these two lies in including depreciation and amortization expenses in the GAAP version, impacting the gross profit calculation.
Formulas
GMgn% = GrossProfit / Sales
GMgn%_GAAP = (GrossProfit - Depreciation and Amortization) / Sales
GMgn% offers a view of the company's operational efficiency, excluding depreciation and amortization, which are non-cash expenses. This can be useful for evaluating the core profitability of a company's business operations. On the other hand, GMgn%_GAAP, by including depreciation and amortization, provides a more conservative perspective, aligning closer with GAAP principles.