Gross profit

Revenue minus the direct cost of producing what was sold. It measures the raw spread a product earns before any of the cost of running the company is counted.

A garment exporter with ₹4,800 crore of revenue and ₹3,120 crore of cost of goods sold has ₹1,680 crore of gross profit, a gross margin of 35%.

Gross profit is the first place to look when margins move, because it separates a pricing or input-cost story from an overhead story. If gross margin is stable and operating margin fell, the problem is in salaries, advertising or administration, not in the product.

For an Indian filing, building the figure at all takes a moment of assembly. Add cost of materials consumed, purchases of stock-in-trade and changes in inventories of finished goods and work in progress, subtract that total from revenue from operations, and the result is the equivalent of gross profit. Decide separately whether to include manufacturing employee costs and factory depreciation, then apply the same decision to every company in the peer set. A gross margin comparison in which one company's number includes factory depreciation and another's does not is not a comparison at all.

Comparability across companies is weaker than it looks. Some firms put freight and depreciation of factory plant inside cost of goods sold and some do not, so a gross-margin gap between two competitors may be an accounting-policy gap. Check the notes before drawing a conclusion.