From the course: Financial Analysis: Analyzing the Bottom Line with Excel

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The basics of gross margin analysis

The basics of gross margin analysis - Microsoft Excel Tutorial

From the course: Financial Analysis: Analyzing the Bottom Line with Excel

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The basics of gross margin analysis

In this chapter we will be focusing on the analysis of gross margin. Gross margin is what is left over from your revenue once you have paid all the costs that relate to the production of goods. The more you get of it, the better for your business. To make it simple, the concept is that once a customer has paid for your product, you use that money to pay for all the elements that came into play for the production of your product such as raw material and the labor costs of producing the goods. Of course in real life, you usually pay for those things before you sell them, so that means that you first have to spend the money, and then recover it as you sell your products. Most of the time, you actually buy the raw material in bulk and sell the products one at a time. So there's a bit of computation to be done. Let's imagine that you produce and sell pens. You then have to buy raw material to produce those pens, which in this case is plastic and ink to simplify. Once those are bought they…

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