Gross Margin is an important financial metric that measures a company's efficiency in managing its production costs relative to its net sales revenue. It is expressed as a percentage and is calculated using the formula: (Revenue - Cost of Goods Sold) / Revenue x 100. The result tells businesses how much money they retain from each dollar of sales after covering the cost to produce or deliver goods and services. For example, if a company's annual revenue is $500,000 and its COGS is $300,000, its Gross Margin is [(500,000 - 300,000) / 500,000] x 100 = 40%.

This metric is crucial for businesses because it helps them understand their profitability at the operational level, excluding overhead and other expenses. For instance, a high gross margin indicates effective cost management and pricing strategy, while a low gross margin may suggest the need for cost reduction or price optimization. In day-to-day use, a manager might say, "Our Gross Margin improved this quarter due to reduced supplier costs," showcasing its practical significance in financial health assessment.