Description
On the income statement, revenue is any sale which is “booked” in a given time period. For example, when you buy a book or magazine from Barnes & Noble, that sale is booked as revenue for the time period in which you bought it. In this case, the store actually receives the amount owed at the time of sale. However, in other cases, such as when a company buys a large number of computers from a company like Dell - the revenue is booked at the time of sale, even though the purchasing company may not pay the entire amount until later.
The Cost of Goods Sold, or “COGS”, outlines any direct cost of producing / manufacturing the products sold by a company. For example, the cost of any parts used to build a Dell computer would be included in COGS. Gross Profit = Revenue minus COGS, and the “Gross Margin” is gross profit expressed as a percentage of revenue.
Calculation
What it Means
The gross margin measures how much revenue a firm retains after COGS is accounted for. For example, a company with a gross margin of 60% keeps $0.60 of every dollar of revenue after accounting for the direct cost of manufacturing its products.