Score gross, operating, and net margin levels against healthy thresholds
Answers how strong a company's profitability is at each layer of the income statement. It reads trailing gross, operating, and net margins from the fundamentals data, scores each layer against healthy thresholds, and produces a 0-100 margin score rated strong, neutral, weak, or high-risk. Use it to see at which stage of the income statement profitability is strong or weak. It reads one trailing period, so it measures no margin trend and does not show whether profitability is expanding or compressing.
Income-statement decomposition: reading profitability after successive layers of cost.
Three margins, each relative to revenue. GROSS MARGIN is (revenue - cost of goods sold) / revenue. OPERATING MARGIN subtracts operating expenses - selling, general and administrative and research among them, along with depreciation, amortisation and other operating items. NET MARGIN reflects everything remaining below operating income: interest and tax, and also non-operating gains, losses and one-off items - gains add to income, so this layer is not purely subtractive. Because all three share a denominator, comparing them shows how much of each revenue pound survives each layer.
WHAT THE BRIDGE CAN AND CANNOT DO. Comparing the layers LOCALISES which accounting line to investigate. It does not identify an economic cause. Comparing two periods, a weaker operating margin where gross held tells you the change sits below gross profit; it does not establish that overheads are responsible. A weak net margin relative to operating points below operating income, where interest and tax sit alongside non-operating gains, losses and one-off items. Gross margin itself reflects price, discount, product mix, input cost, capacity utilisation and accounting classification - so it does not isolate pricing power either.
A LIMIT THAT MATTERS MORE THAN ANY OF THAT. Trailing margins are a SNAPSHOT. Expansion, compression, 'stable gross with falling operating', and the very idea of where deterioration BEGINS all require comparable margins from at least two periods. From one trailing set, the analysis can compare layers against each other and against thresholds; it cannot observe a trend. This analysis reads exactly one such set, the trailing twelve months, so it measures no change between periods: it does not show whether profitability is expanding or compressing.
Margins are ratios to revenue, comparable across companies of different SIZE and not across industries with different cost structures: a supermarket and a software firm have structurally different gross margins and neither is better run for it. Any fixed 'healthy threshold' applied across sectors is therefore a screen rather than a judgement. Accounting choices - capitalisation, revenue recognition, what sits in cost of goods sold versus operating expense - move these lines legitimately and differ between companies, which is why margin comparison is most reliable against a company's OWN history.
The 0-100 score, the thresholds and the strong / neutral / weak / high-risk labels are our own convention; the weighting is not published here.
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