Gross Profit Margin: What It Is and How To Use It

Understanding the financial health of a company is essential for investors. The gross profit margin is among the most important and useful financial metrics that give investors potentially game-changing information about a company's profitability. Let’s dive into what gross profit margin is, why it's important, and how to use it when analyzing a company's performance.

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A business person calculating profit from revenue. — Image source: Getty Images.

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Gross profit margin is a useful tool for financial analysis, but it should not be the only instrument in your toolkit. Other financial metrics and operating qualities should also be considered to complete your analysis of a prospective investment. That being said, the gross margin is often a great starting point for a deeper dive.

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NASDAQ: NFLX

Netflix

Today's Change

(-0.22%) $-2.48

Current Price

$1113.89

Key Data Points

Market Cap

$474B

Day's Range

$1099.79 - $1127.94

52wk Range

$746.25 - $1341.15

Volume

353K

Avg Vol

3.2M

Gross Margin

47.87%

Dividend Yield

N/A

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About the Author

Anders Bylund is a contributing Motley Fool media and technology analyst covering semiconductors, cloud computing, internet infrastructure, quantum computing, and streaming media. Previously, Anders was a systems administrator for Nielsen Technology and CSX, gaining hands-on experience with enterprise-class systems. He was also a freelance writer for Ars Technica, TIME, USA Today, CNN, WIRED, and AOL's Daily Finance. He holds a bachelor’s degree in English and a master’s degree in library and information sciences from Florida State University. He believes in coyotes and time as an abstract.

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Anders Bylund has positions in Netflix. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.