Gross Margin

What it is\nGross profit divided by revenue. Apple at 47% gross margin earns 47 cents of gross profit on every dollar of iPhone sold. Walmart at 25% earns 25 cents.\n\n## Why it matters\nGross margin is the cleanest single signal of pricing power. A business that can charge a 60% premium over its costs — and sustain that premium for 10+ years — has structural advantages that show up nowhere else on the income statement.\n\n## What "good" looks like\n- 80%+: software, exchanges, payment networks (Visa, MSCI, Mastercard)\n- 40–60%: branded consumer goods (Apple, Coca-Cola, LVMH)\n- 20–40%: industrials, retailers, restaurants\n- < 20%: commodities, low-cost-leader businesses (airlines, refiners)\n\n## Trends matter more than levels\nA business going from 32% to 28% gross margin over 5 years is a worse signal than one going from 22% to 26%, even though the first is at a higher level. Margin compression usually means competitors are biting into pricing power.