Revenue minus the cost of producing, divided by revenue. It answers: how strong is the product itself. A software company shows 70–90% because the next copy costs nothing; a retailer shows 20–30%; a manufacturer depends on input costs. There is no absolute "good" — always compare to the industry and to the company's own history.

Direction is what counts. A gross margin rising year over year means pricing power — customers accept higher prices, or production got cheaper. One falling for three straight quarters means competition or cost pressure, and usually precedes a problem that reaches the bottom line only later.

After also subtracting selling, marketing, research and administration. This is the profit from the business itself, before financing and tax, which makes it the best number for comparing efficiency across companies. A company with a high gross margin and a low operating margin sells an excellent product and spends it all on marketing — or is building something long term. The statements alone won't tell you which.

The strongest combination in investing: revenue growing while the operating margin rises. That's operating leverage — each extra dollar of revenue costs less to produce, and profit grows faster than sales. The reverse — growth with a falling margin — means the company is buying revenue with money.

The bottom line divided by revenue. The most familiar and the easiest to distort: an asset sale, a one-off tax item or an accounting gain can inflate it for a quarter. So always read it alongside the operating margin — if net jumped and operating didn't move, the jump probably didn't come from the business.