Gross 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.
Why it matters
Gross 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.
A 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.