Thu, 10 August 2023
Gross Margin Is the Comparator
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
Since not all revenue is the same, how does an investor compare one company to another?
Gross margin is one key comparator.
It measures how much revenue is available to invest in the growth of the business.
Gross profit is calculated by taking revenue minus the cost of goods sold.
Gross margin is calculated by taking gross profit divided by revenue.
The higher the gross margin the more capital efficient the business.
This means the company can go further with less funding.
Companies vary in their gross margin.
Some have very efficient product delivery models while others have high-cost models.
While not all revenue is the same, gross margin predicts funds available for future growth.
Consider the gross margin in your investment analysis of a business.
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