Income Statement Insight: Gross Margins Matter

Gross margins increased... Gross margins fell... Gross margins were light... At one point or another -- especially during earnings season -- you have probably read or heard about a company's gross margins. But why?

Understanding a company's gross margins is a big part of fundamental stock analysis , as it's directly related to just how well a company is able to make a profit, and can have a big influence on its stock price.

What Are Gross Margins?

Simply put, gross margins are the revenues a company has left over after the cost of production. A gross margin comes from a company's income statement -- it's the difference between revenues and cost of goods sold (COGS, also referred to as cost of revenue), which can be either a dollar number (gross profit) or a percentage. Gross margins are essentially a measure of profitability. ...