Gross Margin is a key profitability metric that measures how efficiently a company produces and sells its goods or services. It represents the percentage of revenue remaining after deducting the Cost of Goods Sold (COGS), which includes direct production expenses such as raw materials, labor, and manufacturing costs. In simple terms, gross margin reflects how much profit a company makes from its core operations before accounting for administrative, marketing, and financial costs.

The formula for calculating Gross Margin is:

Gross Margin (%) = [(Revenue ? COGS) / Revenue] ? 100

For example, if a company earns ?1 crore in revenue and incurs ?60 lakh in COGS, its gross margin would be 40%. This means that for every ?100 in sales, the company retains ?40 to cover other expenses and generate profit.

Gross Margin serves as an important indicator of a companyís pricing strategy, cost management, and operational efficiency. A high gross margin suggests strong control over production costs or the ability to charge premium prices, while a low margin may indicate higher input costs or competitive pricing pressures. However, ideal gross margins vary by industryótechnology and software companies generally have higher margins compared to manufacturing or retail sectors.

Investors and analysts closely track gross margin trends to assess business sustainability. Consistent improvement in gross margin often signals operational strength, while declining margins could hint at inefficiencies or market challenges.

In summary, Gross Margin provides a clear picture of how effectively a company converts sales into profit at the production level. Maintaining healthy margins is essential for long-term growth, financial stability, and shareholder value creation.