Gross Margin
The percentage of revenue remaining after subtracting the direct cost of producing goods or services sold, before accounting for other operating expenses.
Gross margin is calculated as (revenue minus cost of goods sold) divided by revenue, and it reflects how efficiently a business turns sales into profit before overhead, payroll, and other operating costs are factored in.
Lenders often look at gross margin trends alongside revenue when evaluating a business’s underlying health, since strong revenue with a thin or shrinking margin can signal pricing or cost pressure that pure top-line numbers wouldn’t show.
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