Gross Margin

Gross margin measures the profitability of a business in terms of the percentage of revenue that can be retained after deducting direct costs used to produce goods and services (i.e. operating cost). In Katelynn's Report, gross margin is calculated as Trailing 12 months Gross Profit/Total Revenue * 100%. Higher gross margin represents better performance (higher quantile ranking).

Gross margin varies widely between sectors and industries. So it generally does not make sense to compare gross margins of companies from different sectors or industries. To illustrate this point, the figures below show the distributions of gross margin in technology, energy, consumer durables, consumer services, finance, and basic industries sectors, respectively. The solid blue lines and dashed pink lines are for 2017-01-20 and 2016-01-22, respectively.

Technology	Energy
Consumer durables	Consumer services
Finance	Basic industries

According to the figures shown above, consumer durables and basic industries have the lowest gross margin, while technology and finance have the highest. The observations are generally consistent with our common sense. It is understandable that consumer durables and basic industries require more raw materials and labors to operate than other sectors listed here.

Note that the calculation of gross margin highly depends on how a company defines its operating cost and operating expense, which may change over time, and sometimes have no consistent definition from companies within the same industry. The main difference between operating cost and operating expense is that the former is the expenditure directly associated with the production of goods or services, while the latter is recurring expenditure for maintain the basic function of a business (e.g. administration expense, rent cost, office supplies, compensation for non-production employees).