LESSON 1 / 4 · 7 MIN
Revenue and margins
Read the three margins and what each one says about the business.
Revenue is what the company sells. Margins tell you how much of each dollar of sales it keeps at each stage.
| Margin | Formula | What it tells you |
|---|---|---|
| Gross | (Revenue − cost of goods) / revenue | Pricing power and what the product costs to make |
| Operating | Operating profit / revenue | Whether the business pays its own structure: salaries, R&D, marketing |
| Net | Net profit / revenue | What is left after interest and taxes |
Key idea
The direction matters more than the level. A software company with a 75% gross margin and a supermarket with 25% can both be good businesses. What warns you is a margin that falls quarter after quarter.
Tip
Compare margins only within the same industry. On arturillo.com, /categories groups companies by industry precisely so you can compare like with like.
On the site · /screener
Open /screener, filter one industry and sort by margin. Which company has the highest, and how far is the lowest?
Open it on the site →Check yourself
Revenue grows 20% but the operating margin falls from 25% to 18%. What happened?