169
Glossary of Financial Ratios
“The first step is to measure whatever can be easily
measured. This is OK as far as it goes. The second
step is to disregard that which can't be easily
measured or to give it an arbitrary quantitative
value. This is artificial and misleading. The third
step is to presume that what can't be measured
easily really isn't important. This is blindness. The
fourth step is to say that what can't be easily
measured really doesn't exist. This is suicide."
--- the McNamara fallacy
Gross Margin
Also known as Gross Profit Margin. This is calculated as ratio
of Gross Profit divided by Total Revenue. Gross margin
indicates the total margin available to cover operating
expenses and yield a profit.
Gross Margin = (Total Revenue – COGS) ÷ Total Revenue
where COGS stands for Cost of Goods Sold.
To see the application of gross, operating, and net margins for
evaluating a company's business performance, please review
the HP Case in the chapter on “Solved Cases.”
Copyrighted Material
