What is the difference between gross margin and net margin?

Gross margin focuses on production economics before operating expenses, while net margin includes all costs and taxes to show final profitability.

Quick Definition

Gross margin = (Revenue − COGS) ÷ Revenue. Net margin = Net Income ÷ Revenue. Gross margin shows production efficiency; net margin shows overall profitability after all expenses and taxes.

Use this concept with tools

Inflation-adjusted Return

Nominal return vs purchasing-power return.

CAGR

Convert between annualized rate and final amount.

Compound Interest

Growth with recurring contributions and compounding frequency.

Related concepts

What does an income statement tell me?

An income statement (P&L) shows revenues, costs, and profit over a period. Key items: revenue growth, gross margin trend, and net income. It answers: is the company consistently profitable?

What is ROE?

ROE (Return on Equity) = Net Income ÷ Shareholders' Equity. It measures how efficiently management generates profit from capital. Above 15% is generally considered strong.

Why do accounts receivable and inventory matter?

Rapidly growing accounts receivable signals slow cash collection; ballooning inventory may mean weak demand. Both can lead to write-offs, cash shortfalls, or earnings quality concerns.