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GuruFocus has detected 5 Warning Signs with HP Inc \$HPQ.
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HP Inc (NYSE:HPQ)
Gross Profit
\$8,961 Mil (TTM As of Jan. 2017)

HP Inc's gross profit for the three months ended in Jan. 2017 was \$2,248 Mil. HP Inc's gross profit for the trailing twelve months (TTM) ended in Jan. 2017 was \$8,961 Mil.

Gross Margin is calculated as gross profit divided by its revenue. HP Inc's gross profit for the three months ended in Jan. 2017 was \$2,248 Mil. HP Inc's revenue for the three months ended in Jan. 2017 was \$12,684 Mil. Therefore, HP Inc's Gross Margin for the quarter that ended in Jan. 2017 was 17.72%.

HP Inc had a gross margin of 17.72% for the quarter that ended in Jan. 2017 => No sustainable competitive advantage

During the past 13 years, the highest Gross Margin of HP Inc was 24.86%. The lowest was 18.65%. And the median was 23.34%.

Warning Sign:

HP Inc gross margin has been in long term decline. The average rate of decline per year is -5.2%.

Definition

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

HP Inc's Gross Profit for the fiscal year that ended in Oct. 2016 is calculated as

 Gross Profit (A: Oct. 2016 ) = Revenue - Cost of Goods Sold = 48238 - 39240 = 8,998

HP Inc's Gross Profit for the quarter that ended in Jan. 2017 is calculated as

 Gross Profit (Q: Jan. 2017 ) = Revenue - Cost of Goods Sold = 12684 - 10436 = 2,248

HP Inc Gross Profit for the trailing twelve months (TTM) ended in Jan. 2017 was 2250 (Apr. 2016 ) + 2172 (Jul. 2016 ) + 2291 (Oct. 2016 ) + 2248 (Jan. 2017 ) = \$8,961 Mil.

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

HP Inc's Gross Margin for the quarter that ended in Jan. 2017 is calculated as

 Gross Margin (Q: Jan. 2017 ) = Gross Profit (Q: Jan. 2017 ) / Revenue (Q: Jan. 2017 ) = (Revenue - Cost of Goods Sold) / Revenue = 2,248 / 12684 = 17.72 %

* 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

HP Inc had a gross margin of 17.72% for the quarter that ended in Jan. 2017 => No sustainable 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.

HP Inc Annual Data

 Oct07 Oct08 Oct09 Oct10 Oct11 Oct12 Oct13 Oct14 Oct15 Oct16 Gross_Profit 25,930 28,665 27,028 30,181 29,827 27,972 25,918 11,220 9,939 8,998

HP Inc Quarterly Data

 Oct14 Jan15 Apr15 Jul15 Oct15 Jan16 Apr16 Jul16 Oct16 Jan17 Gross_Profit -8,414 2,685 2,562 2,326 2,366 2,285 2,250 2,172 2,291 2,248
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