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GuruFocus has detected 5 Warning Signs with GlaxoSmithKline PLC \$GSK.
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GlaxoSmithKline PLC (NYSE:GSK)
Gross Profit
\$25,028 Mil (TTM As of Dec. 2016)

GlaxoSmithKline PLC's gross profit for the three months ended in Dec. 2016 was \$6,340 Mil. GlaxoSmithKline PLC's gross profit for the trailing twelve months (TTM) ended in Dec. 2016 was \$25,028 Mil.

Gross Margin is calculated as gross profit divided by its revenue. GlaxoSmithKline PLC's gross profit for the three months ended in Dec. 2016 was \$6,340 Mil. GlaxoSmithKline PLC's revenue for the three months ended in Dec. 2016 was \$9,471 Mil. Therefore, GlaxoSmithKline PLC's Gross Margin for the quarter that ended in Dec. 2016 was 66.94%.

GlaxoSmithKline PLC had a gross margin of 66.94% for the quarter that ended in Dec. 2016 => Durable competitive advantage

During the past 13 years, the highest Gross Margin of GlaxoSmithKline PLC was 77.08%. The lowest was 62.99%. And the median was 71.00%.

Warning Sign:

GlaxoSmithKline PLC gross margin has been in long term decline. The average rate of decline per year is -2%.

Definition

Gross Profit is the different between the sale prices and the cost of buying or producing the goods.

GlaxoSmithKline PLC's Gross Profit for the fiscal year that ended in Dec. 2016 is calculated as

 Gross Profit (A: Dec. 2016 ) = Revenue - Cost of Goods Sold = 34817.7278402 - 11598.0024969 = 23,220

GlaxoSmithKline PLC's Gross Profit for the quarter that ended in Dec. 2016 is calculated as

 Gross Profit (Q: Dec. 2016 ) = Revenue - Cost of Goods Sold = 9470.66167291 - 3131.08614232 = 6,340

GlaxoSmithKline PLC Gross Profit for the trailing twelve months (TTM) ended in Dec. 2016 was 5834.75783476 (Mar. 2016 ) + 6261.36363636 (Jun. 2016 ) + 6592.6412615 (Sep. 2016 ) + 6339.57553059 (Dec. 2016 ) = \$25,028 Mil.

Gross Profit is the numerator in the calculation of Gross Margin:

GlaxoSmithKline PLC's Gross Margin for the quarter that ended in Dec. 2016 is calculated as

 Gross Margin (Q: Dec. 2016 ) = Gross Profit (Q: Dec. 2016 ) / Revenue (Q: Dec. 2016 ) = (Revenue - Cost of Goods Sold) / Revenue = 6,340 / 9470.66167291 = 66.94 %

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

A positive Gross Profit is only the first step for a company to make a net profit. The gross profit needs to be big enough to also cover related labor, equipment, rental, marketing/advertising, research and development and a lot of other costs in selling the products.

Explanation

Warren Buffett believes that firms with excellent long term economics tend to have consistently higher margins.

Durable competitive advantage creates a high Gross Margin because of the freedom to price in excess of cost. Companies can be categorized by their Gross Margin

1. Greater than 40% = Durable competitive advantage
2. Less than 40% = Competition eroding margins
3. Less than 20% = no sustainable competitive advantage
Consistency of Gross Margin is key

GlaxoSmithKline PLC had a gross margin of 66.94% for the quarter that ended in Dec. 2016 => Durable competitive advantage

Related Terms

Historical Data

* All numbers are in millions except for per share data and ratio. All numbers are in their local exchange's currency.

GlaxoSmithKline PLC Annual Data

 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Dec13 Dec14 Dec15 Dec16 Gross_Profit 35,337 26,652 34,071 31,972 30,707 29,897 29,377 24,543 22,560 23,220

GlaxoSmithKline PLC Quarterly Data

 Sep14 Dec14 Mar15 Jun15 Sep15 Dec15 Mar16 Jun16 Sep16 Dec16 Gross_Profit 6,217 6,505 5,260 6,048 6,017 5,606 5,835 6,261 6,593 6,340
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