Profitability Ratios
Gross, operating, and net margins — the margin stack
Profitability ratios answer one foundational question: how efficiently does this company convert revenue into profit? Three margins — gross, operating, net — measure that efficiency at three levels of cost subtraction. Together they reveal whether you're looking at a high-margin franchise (durable pricing power, expanding earnings) or a low-margin commodity (vulnerable to small input-cost spikes).
The trend over time matters more than any single year. The platform's Ratios tab plots all three over 10 years for every company. Gross margin = (Revenue − COGS) ÷ Revenue.
SaaS companies run 75-85%; semiconductor firms 50-75%; consumer staples 40-55%; airlines 20-30%; grocery chains 25-30%. The level reflects industry structure (Porter's Five Forces from m4); the trend reflects the company's pricing power within that structure. Operating margin = Operating Income ÷ Revenue.
Captures the entire operating engine after R&D and SG&A but before interest and taxes.
That is the opening. Finishing a lesson is where it stops being interesting and starts being useful: the full lesson runs to 5 sections and ends with 3 practice questions. A free account is what opens the rest, and the other 255 lessons in the Academy with it. No card.
What this lesson covers
- 1Operating leverage — the growth accelerator
- 2Computing the three margins from a real income statement
- 3NVIDIA's margin expansion FY2023-FY2025 — operating leverage in action
- 4Where to see this on the platform
- 5Summary