Gross Margin vs Net Margin
Definition
Gross margin measures profitability after only the direct cost of goods sold, while net margin is after all expenses, interest and tax. The gap between them shows the weight of operating and financing costs.
Related Terms in Financial Analysis
Liquidity Ratios
A family of ratios — current, quick and cash ratios — that measure a business's ability to meet short-term obligations from its short-term assets. They are early warning signs of cash trouble.
Solvency Ratios
Ratios such as the debt ratio, gearing and interest coverage that assess whether a business can meet its long-term obligations and survive beyond the short term. They focus on capital structure and debt capacity.
Profitability Ratios
Ratios such as gross margin, operating margin, net margin, ROE and ROA that measure how effectively a business turns revenue and resources into profit. They are the core of performance analysis.
Efficiency Ratios
Ratios such as inventory turnover, asset turnover and receivables turnover that measure how well a business uses its assets and manages its working capital to generate sales.
Stop memorising terms — let HelloBooks do the work
AI-assisted bookkeeping that handles invoicing, GST, reconciliations, and reports automatically. Free to start.