What Is Gross Margin?
Gross margin is gross profit expressed as a percentage of revenue: it shows how many cents of every sales dollar survive the direct cost of producing what was sold, before overheads, interest and tax are considered.
The calculation is simple — gross profit divided by revenue, multiplied by one hundred — but the interpretation is industry-specific. A software company with almost no cost of goods sold can sustain a gross margin above seventy percent, while a supermarket chain runs on a gross margin in the low twenties and prospers through volume and stock turnover. Neither figure is good or bad in isolation; each is normal for its trade, which is why margins should be compared with direct competitors and with the company's own history.
Gross margin moves when either side of the fraction moves. Rising input costs compress it unless prices rise to compensate; discounting to defend market share compresses it directly; a shift in sales mix toward higher-margin products expands it even if no price changes. Because annual filings report both revenue and gross profit, a reader can watch that story unfold year by year in the multi-year tables on this site's company pages.
One caution belongs with every margin figure: companies classify costs differently. Some place delivery, hosting or fulfilment costs inside cost of goods sold, others show them in operating expenses, and that choice alone can move gross margin by several points without any change in real economics. The filing's accounting-policy notes state the treatment, and margins compared across companies are only meaningful once that note has been read.
Putting it into practice
A practical way to use gross margin is to track it against a named rival over the same years. If both companies face the same input prices and one holds its margin while the other's slides, the difference is usually strategy: pricing, product mix or sourcing. Filings rarely say this in so many words, but the segment disclosures and the management discussion usually contain the explanation, and the margin trend tells you where to look. Few ratios point at the right page of the 10-K as reliably.
A worked example from a real filing
Abstract definitions stick better with a real number attached. Take Nvidia Corp (NVDA): in fiscal 2026 it reported revenue of $215.94 billion in its annual 10-K filing, as republished in the SEC EDGAR company facts dataset retrieved in October 2026. Open its company page and you can place that figure next to the same company's net income, operating cash flow, total assets and diluted earnings per share for the same year — the relationships between the measures, not any single one of them, are where understanding lives. Then compare it with peers in the rankings, where the same measures are lined up across the largest filers.
For the full set of plain-English explainers, return to the Learn index, and for exactly how this site selects and labels figures, read the methodology page.