Gross margin

Gross profit as a percentage of revenue. It measures the spread between what a product sells for and what it costs to make.

The exporter converting ₹4,800 crore of revenue into ₹1,680 crore of gross profit runs 35%.

The ratio is the closest thing accounts offer to a measurement of pricing power. A company that raises prices with input costs and holds its gross margin through a commodity spike has demonstrated something about its customers that no strategy document can. One whose gross margin compresses every time raw material moves is a price taker, whatever its marketing says.

Watch it quarterly through an input-cost cycle. That is where the answer is.

Assembling it from an Indian statement takes a decision that has to be applied consistently. There is no cost-of-goods-sold line, so it is built from cost of materials consumed, purchases of stock-in-trade and changes in inventories, and whether to include factory employee costs and plant depreciation is a choice. Make it once and apply it to every company in the peer set.